ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year. Real GDP is expressed in base-year prices. It is often referred to as constant-price GDP, inflation-corrected GDP, or constant dollar GDP.

Detailed explanation-2: -How GDP Is Calculated. The Bureau of Economic Analysis (BEA), a federal agency, calculates real GDP by removing the effects of inflation from the numbers using a GDP price deflator. 1 The deflator is the difference in prices between the current year and the base year chosen by the BEA for comparison.

Detailed explanation-3: -The gross domestic product implicit price deflator, or GDP deflator, measures changes in the prices of goods and services produced in the United States, including those exported to other countries.

Detailed explanation-4: -However, prices can change even if output doesn’t change. Because of that, our measure of output might get distorted by something like inflation. We account for this using real GDP, which is a measure of GDP that has been adjusted for the price level. In this way, real GDP is a truer measure of output in an economy.

Detailed explanation-5: -Real potential GDP is the CBO’s estimate of the output the economy would produce with a high rate of use of its capital and labor resources. The data is adjusted to remove the effects of inflation.