In macroeconomics, which definition best describes real GDP?

• A. The value of final goods and services produced by a country’s residents regardless of location, measured using current-year prices
• B. The total market value of all intermediate goods produced within a country in a given period, measured in current prices
• C. The value of final goods and services produced within a country in a given period, measured using base-year prices (constant prices) to remove the effects of inflation
• D. The value of 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 the concept of GDP (Gross Domestic Product) as the total market value of all final goods and services produced within a country during a specific period.
2. Step 2: Differentiate between nominal GDP and real GDP. Nominal GDP is measured using current-year prices, which means it can be affected by changes in price level (inflation or deflation).
3. Step 3: Recognize that real GDP adjusts for inflation by using base-year prices (constant prices), allowing us to measure the true growth in output without the distortion of price changes.
4. Step 4: Note that real GDP only includes final goods and services to avoid double counting, excluding intermediate goods which are used in the production of final goods.
5. Step 5: Conclude that the best definition of real GDP is the value of final goods and services produced within a country in a given period, measured using base-year prices to remove the effects of inflation.