An increase in government spending shows up exclusively when a change in real GDP shows up exclusively when the price level is assumed to be constant.
The value of all goods and services produced by an economy in a given year is measured by the real gross domestic product (real GDP), often referred to as constant-price GDP, inflation-corrected GDP, or constant dollar GDP (expressed in base-year prices).
Real GDP is a macroeconomic indicator that takes inflation into account and measures the value of the goods and services produced by an economy over a specific time period. Essentially, it determines an economy's total output after taking price fluctuations into account.
Governments use both nominal and real GDP metrics to examine economic expansion and purchasing power over time.
In order to do this, price changes for all goods and services produced in an economy are tracked using the GDP price deflator, sometimes referred to as the implicit price deflator.
The Bureau of Economic Analysis (BEA) publishes a GDP report on a quarterly basis that comprises headline data numbers that indicate real GDP levels and real GDP growth.
Therefore, while the price level is considered to stay constant, a rise in government spending is only seen as a change in real GDP.
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