Constant Dollar GDP

Constant dollar GDP is gross domestic product adjusted for price changes. Gross domestic product is the total market value of all goods and services an economy produces. But the actual GDP in a given year known as current dollar GDP also reflects either an increase or decrease in the general level of prices (i.e., inflation or deflation). Constant dollar GDP adjusts for these price changes. Calculating constant dollar GDP usually entails selecting a base year against which annual price changes can be measured. By eliminating the impact of either inflation or deflation, constant dollar GDP makes comparisons of GDP in different periods useful. Constant dollar GDP has its limitations, however, because new technologies continually change the nature of the goods and services an economy produces. Nevertheless, constant dollar GDP provides the best measure of overall economic growth. Indeed, because constant dollar GDP shows the real growth in the economy, constant dollar GDP is also known as real GDP.