Real Gross Domestic Product and the Terms of Trade

Since their inception in the early 1960s, constant price national accounts have contained a measurement inconsistency in the expenditure accounts which flows through to the production accounts. The inconsistency has the effect of excluding changes in the terms of trade (the ratio of export prices to import prices) from real gross domestic product, so that it is unequal to real gross domestic income, which includes them. In economies, such as those of Australia and Canada, that experience substantial changes in the terms of trade, a real gross domestic product excluding those effects becomes a misleading guide for macroeconomic analysis and policy.