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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?

Instructions

  • 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

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