Calculating real GDP

When you adjust nominal GDP for price changes (inflation or deflation), you get what is known as the Real GDP. It can be calculated using the following formula:
Real GDP = ∑ pbqt, where b denotes the base year.

To effectively compare the real GDP of two years, one can construct an index using a base year. A base year is usually an arbitrary figure (here, a particular year) which is used as a yardstick for comparison of the GDP numbers.

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