In our previous Economic Insights article, we expanded our understanding of the macro economy with the concept GDP — Gross Domestic Product. And we discovered that the key to assessing changes in our economy is by noticing not just the actual dollar value — but rather the percentage change in our indicator, period over period.
To have a better grasp for evaluating GDP, we need to make another adjustment to our macro measurement, and that is: we must take into account price changes that could affect the dollar value of GDP — and in turn distort the changes in real productivity or real output. So we need to move from the concept “GDP” to “Real GDP”.
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