ABSTRACT

Gross domestic product (GDP), the value of final goods and services produced within a country during a period of time, is the measure economists typically use to gauge aggregate economic activity in a modern nation state. It is essentially the sum of the product of prices and (final) quantities of goods and services destined for exchange in the market. The prices in this measure can be influenced by inflation (or deflation) – that is, a general increase (or decrease) in the price level unrelated to “real” economic activity. To control for these effects, economists hold prices constant for some “base year.”1 This adjustment yields real GDP, which is purged of any inflationary (or deflationary) effect. Real GDP, then, is a key economic indicator, and its growth represents “economic growth.”