What is the difference between GDP at curren prices (money GDP) and GDP at constant prices (real GDP)?

Question

Does it make any difference which of the two is used to measure economic activity? Why or why not?

Answer 1

This has to do with the accuracy of data comparison. By looking at GDP in the actual transaction dollars, we get a picture of the economic activity and exchange of wealth relevant to the time of the transaction. By translating the GDP into current prices, the data comparison is thought to be more relevant to look at trends of the growth or decline of wealth. Since our money is constantly devalued due to inflation, the transactions that make up the GDP reflect the volume of wealth, not necessariky the value of wealth=.

Consider this:

The price of a gallon Gasoline in the early 1960's was $.25. Today we are lucky if the gallon is $2.50. But look at the value of real estate:

Back then you could buy a house for $50,000 that today you would pay $800,000. The value of real estate has grown more than petroleum.

Either example shows that GDP volume must have grown 10X to retain the same value.

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