Real gross domestic product
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Real gross domestic product (GDP) is a macroeconomic measure of the size of an economy adjusted for price changes and inflation. It measures in constant prices the output of final goods and services and incomes within an economy. The formula for its definition is [(Nominal GDP)/(GDP deflator)] x 100, however, it is not calculated in this way. Real GDP is calculated as prices in the "base year" times quantities in the current year, such that production is held constant for the value of currency[1].
Real GDP for a given year is the given year's nominal GDP stated in the based-year price level. Real GDP growth on an annual basis is the nominal and abnormal GDP growth rate adjusted for inflation and expressed as a percentage.
Because Real GDP is adjusted for changes in prices and inflation throughout the year, it can be thought of in terms of 'purchasing power.' As a result, individual purchasing power can be measured by Real GDP per capita, i.e., real GDP divided by the size of the population.
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