What does Real GDP measure?

Real GDP measures the production of goods and services valued at constant prices. This approach takes into account inflation or deflation by adjusting nominal GDP (which is measured at current market prices) to reflect the value of goods and services in a particular base year. By using constant prices, Real GDP provides a more accurate representation of an economy's size and how it grows over time without the distortive effects of price changes.

This measurement allows for meaningful comparisons of economic output across different time periods by eliminating the effects of price level changes, facilitating an understanding of true economic growth. Thus, Real GDP is particularly valuable for evaluating the performance of an economy and its overall health.