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Real GDP is gross domestic product in constant dollars. In other words, real GDP is a nation's total output of goods and services, adjusted for price changes. Real GDP can be compared to nominal GDP, which is GDP in current dollars, i.e., the nation's output in actual dollars in a given year. Here's an example of real GDP: suppose in year 1 a country produced a total of five widgets priced at $10 each, or $50 total. In year 2, it produced the same five widgets, but the price rose to $12, or $60 total. Assume year 1 is the base year used to calculate real GDP. In year 1, nominal GDP was $50 and real GDP was also $50. In year 2, nominal GDP was $60; but real GDP was only $50, because in constant (year one) dollars, only $50 in widgets were produced. By eliminating the effect of price changes, real GDP allows economists to make useful comparisons of a nation's output and services. Note that real GDP is also known as constant-price GDP and inflation-corrected GDP. |
