What it is:
Also called real, constant-price is inflation-adjusted .
How it works (Example):
Gross domestic product (GDP) is the broadest quantitative measure of a nation's total economic activity. More specifically, represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.
The Department of economy on a quarterly at 8:30 am EST on the last business day of the next quarter.releases data for the U.S.
The equation that's used to calculateis as follows:
= Consumption + Government Expenditures + + Exports - Imports
The components that are used to calculateinclude:
- Durable goods (items expected to last more than three years)
- Nondurable goods (food and clothing)
- Nonresidential (spending on plants and equipment), residential (single-family and multi-family homes)
- Business inventories
- Exports are added to
- Imports are deducted from
Thereport also includes information regarding inflation:
- The implicit price deflator measures changes in prices and spending patterns.
- The fixed-weight price deflator measures price changes for a fixed basket of more than 5,000 goods and services.
Inflation, however, changes the value of year.over time. Accordingly, constant-price measures the value of a country's goods and services in relation to a base
For example, let's say we want to measure the real inflation. Though is now $78, the constant-price is still $55 -- it takes out the effects of inflation.of Country A. In 2000, the country produces $55 of goods and services. If we set 2000 as the base year, any future is measured against that total. For example, let's assume that in 2001, Country A's produces the same amount of goods and services but now the price of them is $78 because of
Why it Matters:
is calculated both in current dollars and in constant dollars. Constant-price involves calculating economic activity in present-day dollars. This, however, makes time period comparisons difficult because of the effects of . By comparison, constant-price out the impact of and allows for easy comparisons by converting the value of the dollar in other time periods to present-day dollars.
When recession. Meanwhile, when grows too quickly and fears of arise, the Federal Reserve often attempts to stimulate the by raising interest rates.declines for two consecutive or more, by definition the is in a