Real Gross Domestic Product (real GDP)

An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. It is calculated as nominal GDP divided by the GDP price deflator.

Say in 2004, nominal GDP is $200 billion. However, due to an increase in the level of prices from 2000 (the base year) to 2004, real GDP is actually $170 billion. The lower real GDP reflects the price changes while nominal does not. In this case the GDP deflator is 1.176.

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