How to Use a GDP Deflator

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How to Use a GDP Deflator
Use the GDP deflator to figure out nominal vs. real GDP. (Ciaran Griffin/Lifesize/Getty Images)

Gross Domestic Product (GDP) is an important measure in economics that helps to determine the size of a country's economy. GDP is measured either in real terms or nominal terms. Real terms means the GDP has been adjusted for inflation, or deflation, from a base year. The nominal GDP, also known as the historical GDP, represents the GDP without adjusting for inflation or deflation. To convert between nominal and real GDP, you can use the GDP deflator. The deflator allows you to quickly switch between nominal and real GDP.

Skill level:
Easy

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Instructions

    Calculating Real GDP

  1. 1

    Find the GDP deflator and nominal GDP. The formula for the GDP deflator is nominal GDP divided by real GDP, then multiplied by 100. However, the US Bureau of Economic Analysis (BEA) releases the GDP deflator and real GDP so you do not need to calculate these amounts. See resources.

  2. 2

    Divide the GDP deflator by the nominal GDP.

  3. 3

    Multiply the result from Step 2 by 100 to find real GDP.

    Calculating Nominal GDP

  1. 1

    Find the GDP deflator and the real GDP.

  2. 2

    Multiply the GDP deflator by the real GDP.

  3. 3

    Multiply the result from Step 2 by 100 to calculate nominal GDP.

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