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What is Real GDP
To be able to make reasonable comparisons of GDP over time, we must adjust for inflation. For instance, if prices are doubled over 1 year then GDP would double although exactly the same services and goods are produced as the year before. To eliminate effect of inflation we divide GDP by a price index and we define real GDP as GDP divided by a price index.
The circular flow of income in a closed economy A closed economy exists when there is no international trade. We shall also assume that in this particular closed economy there
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NATIONAL INCOME STATISTICS
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