Real GDP

How do you know how well and economically the country's economy is performing its tasks? Is it possible to calculate its activities over a certain period of time? Of course, this is possible. For this purpose, the value of gross domestic product (GDP) is used in macroeconomics.

GDP is the sum of the market values of services and goods intended for end use and manufactured for a certain period of time in the territory of a given country. There is nominal, as well as real GDP. Let us consider these important definitions in more detail.

Nominal GDP is an indicator that measures the cost of aggregate output at the prices of the period considered in the calculations. It changes every year. There are two reasons for this. First, the market value of services and goods varies. Secondly, the total physical volume of output is also growing, or, conversely, falls. For example, in this period prices for all categories of services and goods have doubled. Consequently, nominal GDP has also doubled, but this does not mean that the economy has functioned better and more effectively in this period of time. In order to separate the changes in GDP that occurred due to the increase and decrease in prices, real GDP was introduced from GDP changes directly related to output. In order to find this value, it is necessary to make some calculations.

Real GDP is an indicator that measures the physical volume of goods and services produced at different time intervals by estimating all products manufactured in both periods at constant prices. That is, the calculation of the GDP in question makes it possible not to take inflation into account.

Real GDP helps to understand whether the economic situation has improved or worsened over the year. For example, it is necessary to compare the volumes of GDP for 2011 and 2012. To do this, you need to multiply the volume of all products and services for each year by their prices in 2011. This approach allows you to see the actual growth in output.

The calculation of real GDP can be obtained in a different way. To do this, it is necessary to divide the nominal GDP by the value of the GDP deflator or the GDP price index. Here additional calculations will be required. The GDP deflator is an analog of the CPI ( consumer price index). It allows you to find out the changes in the value of products that are part of GDP. Calculation of the deflator requires the selection of a certain range of services and goods. The set includes, in addition to the value of the consumer basket, the benefits purchased by the government, products circulating on the world market, investment goods. The GDP deflator, unlike the CPI, is based on the current production structure. It is worth noting that deflators of different years can not be compared, since they reflect different sets of benefits.

That is, in a different way, one can say that real GDP is GDP, "cleaned" from the impact of price level changes. Let us give an example. The inflation rate was 15%, and the nominal GDP increased by 20%. So, real GDP grew by 5%. It is worth noting that the formula used in this example can be used only at low rates of change, that is, with a small level of inflation.

Let us consider in more detail the main points that should be borne in mind when calculating GDP. It is necessary to consider products intended for end use. That is, in the calculations do not appear intermediate goods. For example, when you include in the calculation of GDP the cost of a car, you do not need to separately consider the price of its wheels.

When calculating the GDP, services and goods manufactured for the time period under consideration are taken into account. GDP is at market prices. The GDP includes only those services and goods that are produced in the territory of a given country.