Real GDP

What is Real GDP?

Real GDP is short for Real Gross Domestic Product. Gross Domestic Product is the main way that a nation's economic decisions are analyzed. It measures the value of all the final goods and services for a period of time. Final goods are purchased by a consumer who wants to utilize the good as is. In other words, a final good does not get used as a part of another good - that would make it an intermediate good. For example, a pizza pie is purchased as a final good, but the tomatoes, cheese, dough, etc. used to make the pizza were purchased as intermediate goods.

Take a close look at the graph below.

There are two types of GDP: Real and Nominal. In this graph specifically, the GDP is adjusted for inflation, making this Real (Nominal GDP does not take inflation in to consideration at all). Using 2009 as the base year, this graph shows the economic growth the country has seen from the late 1940s to 2017. This process works by comparing the money people earned and the goods/services they bought with that money from all the years before and after 2009 and comparing it with the money people earned and the goods/services they bought with that money in 2009.

The grey areas show periods of a recession (hence why the line dips in those areas). In other words, this graph showcases how much purchasing power a dollar has every year, rather how many dollars one has every year.

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