Real GDP Calculator

When an economy reports annual growth in output of 8 percent, part of that increase is often due to higher prices rather than actual increases in goods and services. Real GDP accounts for these price factors. Because it values all the production of a country at the prices of a single base year, changes in real GDP reflect only actual changes in the volume of output.

This calculator allows you to use price indices both ways. If you enter two of the following values: nominal GDP, GDP deflator and real GDP it will calculate the third value. The units can be entered in thousands, millions or billions so that you can directly use the numbers published in national income and product accounts.

What does real GDP measure?

Nominal GDP measures the volume of production in a year at that year's prices while real GDP measures the same volume of production but at base year prices. The GDP deflator is a price index which links the two and it is also the index used by this calculator for division.

The deflator of the base year is set to 100. A value of 118 means that the general price level is 18 percent higher than in the base year, while a value of 95 indicates a deviation of 5 percent downwards. By dividing nominal GDP by this index and then multiplying it with 100, price fluctuations are removed.

Suppose the nominal GDP of a year is $2.3 trillion and the deflator is 118. The real GDP will be calculated by dividing 2.3 by 118 and then multiplying it by 100, which gives about $1.949 trillion at base-year prices. Of this nominal total, about $351 billion is not due to additional production but rather price increases since the base year.

The same relationships can be expressed in two different ways. For this reason the calculator can be used to find missing values.

The table below shows each term and its corresponding numerical example.

Comparison of nominal and real GDP

Nominal GDP contains two factors: the increased amount of production in an economy and price increases. Real GDP only considers the first factor. Economists always use real GDP when comparing output amounts from different years because the quantity measures remain constant.

If nominal GDP rises and the deflator also rises at the same rate, real GDP hardly changes. It does not mean that the country's production has increased; it just means that it is being measured in a more valuable currency. The difference between the two figures represents the adjustment for price level, which is exactly what the deflator provides.

Here's how to use this calculator.

1. Enter the nominal GDP calculated at current prices and select the appropriate quantity unit (thousands, millions or billions).

2. Enter the GDP deflator for this year and note that the base year is equal to 100.

3. Read the real GDP. If you want to calculate backwards, leave one of the three fields blank and enter the other two. The missing value will be shown in its original position.

Make sure both GDP values are in the same currency and refer to the same base year. Open up the real GDP growth option and compare the current year's real GDP with an earlier year's to see direct real growth.

Real GDP growth

The most common reason for calculating real GDP is to measure growth after adjusting for the effects of inflation. If you have real GDP figures for two periods, then the rate of growth can be shown by this formula:

Continuing the previous example, if last year's real GDP was 1,890 billion and this year's is 1,949 billion, then the real growth rate would be about 3.1 percent. The nominal growth rate for that same period is much higher, but most of it is not due to an increase in production, but rather price changes.

When comparing over multiple years the Growth option also shows the average annual growth rate. This makes it easier to compare periods of different lengths as the actual change is spread evenly across each year for the whole period.

GDP Deflator and Consumer Price Index

Both the deflator and consumer price index track inflation but differ in their calculation method.

• The scope is different: the CPI measures a fixed basket of goods that consumers buy, while the deflator covers all domestically produced goods including capital goods, exports and government spending.

• The basket of goods varies: the deflator uses a Paasche index which is re-weighted each period using quantities from that year. The CPI on the other hand uses a Laspeyres index but based on a fixed basket over time.

• For imported goods, the CPI measures the imported goods purchased by households while the deflator only measures domestic production and does not take imports into account.

When looking at the economy as a whole, the deflator is a more comprehensive indicator. However, when it comes to cost of living, the CPI is a more relevant indicator for what households actually experience.

Use of Real GDP

• Central banks observe real output and not nominal values to judge whether a policy is effective.

• Inflation rates vary widely between economies and so an international comparison is only meaningful in real terms.

• Long-term studies spanning decades are difficult to analyze using nominal values because the value of a currency is constantly changing.

• For investors, a strong nominal trend combined with a rapidly rising deflator mainly indicates inflation. Conversely, relatively moderate nominal growth in the face of stable deflators can point to healthy real output performance.

Tips for accurate calculations:

• The three inputs must use the same base year. Combining real GDP referenced to one base year (2017), with a deflator referenced to another base year (2012) may appear numerically plausible but is actually meaningless.

• The numbers must come from the same source. The Bureau of Economic Analysis (BEA) publishes US GDP in chained dollars with values given as 2017 dollars and also the World Bank publishes data for various countries using the same method.

• The currency and units of measure must be consistent. If real GDP and nominal GDP do not use the same currency or scale, then the deflator will be incorrect.

If you want to use real GDP to further compare the standard of living between different countries, you can divide the real GDP by population using a per capita real GDP calculator.