Measuring the difference between the changes in output and changes in the price level involves making an important distinction between Nominal GDP and Real GDP.
When we calculate GDP in the economy, we are measuring the value of total production/ total expenditures, on the economy’s output of goods and services. Furthermore, we are also measuring the total income of everyone in the economy. What is the reason? Because every dollar of spending by some buyer ends up being a dollar of income for some seller. In short, for an economy as a whole, expenditures must equal income. The circular flows shows the flow of money in the economy.
The most widely reported statistic throughout the world of measuring economic performance is Gross Domestic Product. Gross Domestic Product or GDP is the market value of all final goods and services produced within a nation’s geographic borders during a period of time, usually a quarter or a year.