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How to Calculate Real GDP

Watch more Intermediate Math Skills videos: http://www.howcast.com/videos/437592-... The real gross domestic product of a country measures the value of its economic activity. But how can you calculate it? Step 1: Understand real GDP Know that a country's GDP is the sum of the prices of all goods and services produced in its economy during a set period of time. Step 2: Understand base years Understand that real GDP is the sum of all produced goods and services at constant prices gleaned from a specified base year. Real GDP permits a comparison of economic growth from year to year in terms of production of goods and services. Tip In contrast, nominal GDP is the sum of the value of all produced goods and services at current prices. Nominal GDP is a better indicator of sheer output than the value of output over time. Step 3: Choose a base year Choose a base year. The prices for this year will be used for the calculations in the other years as well. Step 4: Evaluate economic activity Evaluate economic activity by determining the values of consumer spending, investment, government spending, and net exports in base year prices. Step 5: Calculate the sum Calculate the sum of these separate contributions to GDP. Then compare your country's ranking with that of others. Did You Know? The real GDP of the United States was approximately $12.9 trillion in 2009.