Real GDP is defined as:

Real GDP is defined as:

• A. the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year.
• B. the total value of all final goods and services produced in the economy during a given year, calculated with the prices current in the year of production.
• C. the total value of all final goods and services produced in the economy during a given year, ignoring inflation.
• D. the total value of all final goods and services produced in the economy, measured in nominal dollars

Answer: (A)

Real GDP measures what the economy produces by valuing all final goods and services at constant prices from a chosen base year. This keeps the price level fixed, so changes in Real GDP reflect only changes in the quantity of goods and services produced, not inflation. If we used current-year prices, we’d be counting price changes as well, which is nominal GDP. Real GDP thus uses base-year prices and is expressed in constant dollars.

Real GDP measures what the economy produces by valuing all final goods and services at constant prices from a chosen base year. This keeps the price level fixed, so changes in Real GDP reflect only changes in the quantity of goods and services produced, not inflation. If we used current-year prices, we’d be counting price changes as well, which is nominal GDP. Real GDP thus uses base-year prices and is expressed in constant dollars.