Definition
Chained 2012 Dollars is a way to express economic values, such as GDP or personal income, adjusted for inflation using 2012 as a reference year. This method links each year's prices to the previous year to reflect real changes in purchasing power over time.
Why It Matters
By using chained dollars, economists can more accurately compare economic output across years, avoiding distortions caused by inflation. This provides a clearer picture of real growth and helps policymakers make informed decisions about fiscal and monetary policy.
Example
If nominal GDP increased by 5% from one year to the next, but inflation was 2%, expressing GDP in chained 2012 dollars would show a real growth of approximately 3%, giving a true sense of economic expansion after removing price level changes.