Real GDP is the market value of all final goods and services produced within the boundary of the economy within a specified period of time where the output produced is valued at some base year prices. To put it simply, if we multiply the output produced over time with the prices from the chosen base year, we arrive at real GDP ( also called GDP at constant prices).
While measuring the size of the economy, we use the value of GDP measured at current prices. Such a figure can be misleading because nominal GDP can increase with the increase in price level even when the real output has risen insignificantly. Such problem can be overcome by using real GDP statistics. However, the value of Real GDP itself is not a good measure for the purpose because its value depends on the year chosen as the base year. If we rebase the GDP series, the values of real GDP will change obviously making it inconvenient to compare with the old series.
Let us see an example from Nepal.
Nominal GDP
|
Real GDP at 2001/01 prices
|
Growth Rate
|
Real GDP at 2004/05 prices
|
Growth Rate
|
Real GDP at 2009/10 prices
|
Growth Rate
|
Real GDP at 2018/19 prices
|
Growth Rate
|
|
2000/01
|
441519
|
441518
|
522837
|
851426
|
1610008
|
||||
2001/02
|
459443
|
442049
|
0.1
|
523465
|
0.1
|
852449
|
0.1
|
1611943
|
0.1
|
2002/03
|
492231
|
459488
|
3.9
|
544116
|
3.9
|
886079
|
3.9
|
1675536
|
3.9
|
2003/04
|
536749
|
481004
|
4.7
|
569595
|
4.7
|
927570
|
4.7
|
1753994
|
4.7
|
2004/05
|
589412
|
497739
|
3.5
|
589412
|
3.5
|
959841
|
3.5
|
1815018
|
3.5
|
2005/06
|
654084
|
514486
|
3.4
|
609243
|
3.4
|
992136
|
3.4
|
1876085
|
3.4
|
2006/07
|
727827
|
532038
|
3.4
|
630028
|
3.4
|
1025984
|
3.4
|
1940090
|
3.4
|
2007/08
|
815658
|
564517
|
6.1
|
668489
|
6.1
|
1088616
|
6.1
|
2058525
|
6.1
|
2008/09
|
988272
|
590107
|
4.5
|
698792
|
4.5
|
1137965
|
4.5
|
2151841
|
4.5
|
2009/10
|
1192774
|
618529
|
4.8
|
732449
|
4.8
|
1192774
|
4.8
|
2255482
|
4.8
|
2010/11
|
1366954
|
639694
|
3.4
|
757512
|
3.4
|
1233588
|
3.4
|
2332660
|
3.4
|
2011/12
|
1527344
|
670279
|
4.8
|
793730
|
4.8
|
1292569
|
4.8
|
2444190
|
4.8
|
2012/13
|
1695011
|
697954
|
4.1
|
826502
|
4.1
|
1345937
|
4.1
|
2545107
|
4.1
|
2013/14
|
1964540
|
739754
|
6.0
|
876001
|
6.0
|
1426545
|
6.0
|
2697533
|
6.0
|
2014/15
|
2130150
|
764336
|
3.3
|
905110
|
3.3
|
1473947
|
3.3
|
2787169
|
3.3
|
2015/16
|
2253163
|
768835
|
0.6
|
910438
|
0.6
|
1482624
|
0.6
|
2803577
|
0.6
|
2016/17
|
2674493
|
832060
|
8.2
|
985308
|
8.2
|
1604548
|
8.2
|
3034129
|
8.2
|
2017/18
|
3031034
|
887455
|
6.7
|
1050905
|
6.7
|
1711371
|
6.7
|
3236127
|
6.7
|
2018/19
|
3464319
|
950033
|
7.1
|
1125009
|
7.1
|
1832047
|
7.1
|
3464319
|
7.1
|
The value of real GDP for 2018/19 when evaluated at 2000/01 prices is 950033 million whereas the real GDP for the same year when evaluated at 2004/05 prices is 1125009 million, at 2009/10 prices is 1832047 million and at 2018/19 prices is 3464319 million. Thus, the value of real GDP for 2018/19 depends on the base year chosen. As there is the practices of rebasing GDP figures on a continuous basis with the changing structure of economic activities, real GDP value is not a proper measure to measure the actual size of economic activities.
Real GDP figure is used to measure the performance of the economy over time. Economic growth is simply the percentage change in the real GDP. In the above table, we see that whatever the base year used for the estimation of real GDP, economic growth rate remains unchanged.
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