To arrive at a more accurate measure of real output changes in an economy, nominal GDP figures should be adjusted for inflation.

Question

Quizplus · Accepted Answer

Nominal GDP measures the value of goods and services produced in an economy at current prices. However, inflation can cause nominal GDP to be an inaccurate measure of real changes in output. Adjusting nominal GDP for inflation using a price index, such as the Consumer Price Index (CPI), creates a measure of GDP that reflects changes in output adjusted for changes in prices. This is known as real GDP.

To Arrive at a More Accurate Measure of Real Output