Real GDP

Real Gross Domestic Product ( Real GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year. This adjustment allows for more accurate and meaningful comparisons of economic performance across different years, as it removes the effects of inflation.

For example, if an economy had a 3% increase in nominal GDP from one year to another but experienced 5% inflation, the real GDP growth would be -2%, indicating that the economy actually contracted after taking into account price changes. In contrast, real GDP already factors in inflation, so no additional calculations are needed to understand the ‘real’ economic growth. This makes real GDP a more reliable measure for comparing the economic output over time, providing a clearer picture of an economy’s health.

Sometimes referred to as constant-price GDP or constant dollar GDP, real GDP helps avoid the misleading effects of inflation seen in nominal GDP, ensuring a more accurate assessment of economic performance.