GDP or Gross Domestic Product refers to the total market value of the total number of finished goods and services produced within a country in a certain period of time which is usually a year.
Real GDP is the value of the total gross domestic product (that is, all the goods and services produced for money in the economy) adjusted for the effects of inflation. In theory, it represents the physical quantity of output.
Real GDP stands opposite of the Nominal GDP. Nominal GDP does not adjust for inflation but the real GDP does and that is why real GDP showcases the true state of the country’s economy without hiding any truth.
GDP Deflator deals with inflation in general so taking that into account gives the true picture of the economy. Nominal GDP and GDP Deflator must be determined first before going to calculate the Real GDP. It would be very challenging to determine the actual economic expansion with only the Nominal GDP. The formula is stated below -
Real GDP = Nominal GDP / GDP Deflator
Use of the Term in Sentences:
- According to the US Bureau of Economic Analysis (BEA), the third quarter of 2020 has seen an increase of 33.4% in real GDP.
- Real GDP per capita is the ultimate measurement of a nation’s present economic scenario and comparing it with the real GDP of past years shows the economic growth.