Chapter 13, Problem 13AA

To determine

To ascertain: The method of determining the real GDP from GDP along with reasons.

Explanation of Solution

Real GDP makes it more interesting to compare GDP from year to year and from various years as it demonstrates parallels for both the amount and value of the goods and services whereas GDP is the total of all value of a country's manufactured goods and services. GDP is calculated over particular time periods for particular one year or quarter.

To measure Real GDP, first it is important to estimate the rate of GDP rises due to inflation since the previous year, and to divide the inflation per year. Therefore, actual GDP and nominal GDP can change if prices change but production does not change.

Economics Concept Introduction

Introduction: Real gross domestic product is a process of measurement of macroeconomics which economic production value adjusted for changes in prices. This modification turns the nominal GDP monetary-value calculation into an index for the volume of total production.