Real GDP
BeginnerReal GDP is the value of all goods and services produced in an economy, adjusted for changes in prices, so that it measures changes in the actual quantity of output rather than changes caused by inflation.
Gross domestic product measured at current prices can rise simply because prices have gone up, even if the economy produces no more than before. Real GDP removes this effect by valuing output at the prices of a chosen base year, or by using a price index to strip out inflation.
For example, if an economy's nominal GDP rises from 1,000 billion to 1,060 billion in a year while prices rise by 4%, its real GDP has grown by only about 1.9%. Most of the increase came from higher prices, not from producing more.
Real GDP is the main measure used to judge whether an economy is growing or shrinking. When economists, central banks and news reports talk about the economic growth rate, they almost always mean the growth rate of real GDP. Two consecutive quarters of falling real GDP are a common, though informal, sign of recession.
Real GDP is also used to compare economic performance over long periods, since comparing nominal figures from decades apart would be heavily distorted by inflation.
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