Which definition best describes real GDP?

• A. The total income earned by residents of a country in a given period, adjusted for changes in the price level.
• B. The market value of all intermediate goods and services produced within a country in a given period, measured using prices from a base year.
• C. The value of all final goods and services produced within a country in a given period, measured using prices from a base year (constant prices).
• D. The value of all final goods and services produced within a country in a given period, measured using current-year prices.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand that Real GDP measures the value of all final goods and services produced within a country during a specific period, but it adjusts for changes in the price level to reflect true economic output.
2. Step 2: Recognize that Real GDP uses prices from a base year (constant prices) rather than current-year prices to eliminate the effects of inflation or deflation.
3. Step 3: Differentiate Real GDP from Nominal GDP, where Nominal GDP is measured using current-year prices and can be influenced by price changes rather than actual output changes.
4. Step 4: Note that Real GDP excludes intermediate goods to avoid double counting, focusing only on final goods and services produced within the country.
5. Step 5: Conclude that the best definition of Real GDP is: 'The value of all final goods and services produced within a country in a given period, measured using prices from a base year (constant prices).' This definition captures both the production scope and the price adjustment.