Real GDP is
A) nominal GDP adjusted for depreciation.
B) nominal GDP adjusted for price changes.
C) nominal GDP adjusted for transfer payments.
D) nominal GDP adjusted for indirect business taxes.

Question

Quizplus · Accepted Answer

Real GDP is nominal GDP adjusted for price changes (inflation). This is done by using a GDP deflator or price index to adjust the current year's nominal GDP to reflect the value of goods and services produced in constant (or real) dollars, ignoring the effect of price changes. Option A is incorrect because depreciation is irrelevant to real GDP calculation. Option C is incorrect because transfer payments are not related to real GDP. Option D is incorrect because indirect business taxes also do not account for inflation.

Real GDP Is