How to Calculate Real GDP

The real gross domestic product of a country measures the value of its economic activity. But how can you calculate it?

You will need

  • Base year
  • Base year prices
  • Economic activity values

Step 1 Understand real GDP Know that a country’s GDP is the sum of the prices of all goods and services produced in its economy during a set period of time.

Step 2 Understand base years Understand that real GDP is the sum of all produced goods and services at constant prices gleaned from a specified base year. Real GDP permits a comparison of economic growth from year to year in terms of production of goods and services.

Step 3 Choose a base year Choose a base year. The prices for this year will be used for the calculations in the other years as well.

Step 4 Evaluate economic activity Evaluate economic activity by determining the values of consumer spending, investment, government spending, and net exports in base year prices.

Step 5 Calculate the sum Calculate the sum of these separate contributions to GDP. Then compare your country’s ranking with that of others.

Comments