Real GDP
Output adjusted for inflation, so growth reflects real production, not rising prices.
Formula
Variables
Example
$660B / 110 × 100 = $600B
How it works
Real GDP measures the value of goods and services produced after removing the effect of price changes. It works by dividing nominal GDP, which is measured in current prices, by the GDP deflator, a price index that captures how much overall prices have changed, then multiplying by 100 to convert the index into the same dollar units. This lets you compare output across time without confusing higher prices with higher production.
When to use it
Use this when comparing economic output across different years or quarters and you want to know whether the economy actually produced more goods and services. It is especially useful in growth analysis, business cycle studies, and cross-time comparisons in macroeconomics.
Worked example, step by step
Nominal GDP = $840 billion GDP deflator = 120 Real GDP = (Nominal GDP / Deflator) × 100 Real GDP = (840 / 120) × 100 Real GDP = 7 × 100 Real GDP = $700 billion
Common mistakes to avoid
- Forgetting to divide by the deflator and then multiply by 100
- Using nominal GDP to compare growth across years instead of inflation-adjusted GDP
- Treating the deflator like a dollar amount rather than a price index
Did You Know?
Comparing real rather than nominal GDP prevents mistaking pure inflation for genuine economic growth.
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More in Economics
View allGDP (Expenditure Approach)
BasicNational output measured as total spending by households, firms, government and net exports.
GDP Growth Rate
BasicThe percentage change in real output between two periods.
Inflation Rate
BasicThe rate at which the general price level rises over time.
Unemployment Rate
BasicThe share of the labor force that is jobless and actively seeking work.
GDP Deflator
IntermediateA broad price index covering all goods in GDP, not just a consumer basket.
Price Elasticity of Demand
IntermediateHow responsive quantity demanded is to a change in price.