Which measure is adjusted for inflation to reflect true economic output over time?

• A. Real GDP
• B. Nominal GDP
• C. Price deflator
• D. GDP per capita

Answer: (A)

To compare output across different years, you have to strip out the effects of price changes. Real GDP does exactly that by valuing goods and services at constant prices from a base year. This means it reflects changes in the actual quantity of production, not changes in the price level.

For example, if nominal GDP goes up from 100 to 110 simply because prices rose 10%, but the amount produced didn’t change, real GDP would stay at 100. If production actually rises to 110 units valued at the base-year price, real GDP would be 110, showing true growth in output.

The price deflator is the price index used to convert nominal GDP to real terms, but it’s not the output measure itself. GDP per capita measures output per person, informing living standards, but doesn’t by itself represent inflation-adjusted total output. So the measure that is adjusted for inflation to reflect true economic output over time is Real GDP.