- 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.
- TIP: In contrast, nominal GDP is the sum of the value of all produced goods and services at current prices. Nominal GDP is a better indicator of sheer output than the value of output over time.
- 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.
- FACT: The real GDP of the United States was approximately $12.9 trillion in 2009.
You Will Need
- Base year
- Base year prices
- Economic activity values