Real GDP measures output in constant prices. Real GDP can only increase if the production of physical goods and services increases. A price index measures the level of average prices and shows how prices, on average, have changed. The nominal value has increased, but we still have only 10 pairs of shoes. A price index adjusts values for price changes.
People trade one currency for another in foreign exchange markets .
It is not necessary for large traders to go to a specific place to conduct such transactions. They call a bank that deals in foreign currency and ask the bank to convert some of their dollars to the currency they want. The amount of foreign currency exchanged for dollars depends on the exchange rate -the price of one country's money in terms of another. The record of a nation's transactions with the rest of the world is called the balance of payments . The current account is the sum of the balances for merchandise, services, investment income, and unilateral transfers.