What does the term 'real GDP' refer to?

Real GDP refers to the measure of a country's economic output that has been adjusted for inflation. This adjustment is crucial because it allows for a more accurate comparison of economic performance over different periods. By accounting for changes in price levels, real GDP provides a clearer picture of an economy's true growth or contraction, reflecting the actual increase in the volume of goods and services produced.

In contrast, nominal GDP does not take inflation into account and can therefore give a misleading impression of economic growth if prices rise. Options that refer to nominal GDP, output without adjustments for inflation, or measures not explicitly linked to inflation considerations do not accurately capture what real GDP signifies. Understanding real GDP is essential for evaluating an economy's performance in terms of purchasing power and standard of living over time.