Real GDP
GDP adjusted for inflation.
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Inflation-adjusted output
How it works
Real GDP measures the value of output using the prices from a constant base period, so changes in the number reflect changes in production rather than changes in prices. The formula works by dividing nominal GDP by a price index, which removes the inflation component, and then multiplying by 100 because the deflator is usually reported with 100 as the base. This lets you compare economic activity across different years on a like-for-like basis.
When to use it
Use this when you want to compare a country’s output over time without being misled by inflation. It is especially useful in macroeconomics, business cycle analysis, and any situation where you need to distinguish growth in production from rising prices.
Worked example, step by step
A country reports nominal GDP of $2,400 billion in 2024. The GDP deflator for 2024 is 120. Use the formula: Real GDP = (Nominal / Deflator) × 100 Real GDP = (2400 / 120) × 100 Real GDP = 20 × 100 Real GDP = 2,000 So the real GDP is $2,000 billion in base-year prices.
Common mistakes to avoid
- Forgetting to multiply by 100 after dividing by the deflator
- Using the nominal GDP value when the question asks for inflation-adjusted output
- Confusing the GDP deflator with the consumer price index and assuming they are always the same
Did You Know?
Real GDP strips out inflation, revealing whether an economy truly grew or just saw higher prices.
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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.
Real GDP
IntermediateOutput adjusted for inflation, so growth reflects real production, not rising prices.
GDP Deflator
IntermediateA broad price index covering all goods in GDP, not just a consumer basket.