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Real GDP
From Wikipedia, the free encyclopedia
Real GDP for a given year is the given year's nominal GDP stated in the base-year price level. Real GDP growth on an annual basis is the nominal GDP growth rate adjusted for inflation and expressed as a percentage. Real GDP measures the actual physical volume of production, and is GDP adjusted for inflation.
There is a general formulate for calculating real GDP.
Where X is your current year
Where Y is your set base year.
Year X Real GDP = (Year X quantity of goods A sold x Year Y price of goods A sold) + (Year X quantity of goods B sold x Year Y price of goods B sold) + ....
By definition, the real GDP for Year Y equals Y quantities valued at base-year prices, in this case, because the year is the same, it is BOTH the nominal GDP and real GDP.
By calculating Year X quantity of goods A sold against Year Y prices of goods A sold, this is adjusting for inflation as we are taking away the fact there is an increase in prices. By calculating real GDP, we can compare if we are "better off" for our current year compared to our set base year. If the difference between "current year real GDP - base year real GDP" is positive, that means the economy has grown. However if the difference is negative, it means the economy has slown down and is not doing as well compared to the base year.
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