Nominal and Real GDP

What is the Nominal Gross Domestic Product?

Nominal Gross Domestic Product is GDP assessed at current market cost prices. GDP is the monetary value of all the finished goods and services produced within a nation’s borders in a specific time frame. Nominal varies from real GDP and it incorporates changes in cost prices due to inflation or an increase in the overall cost price degree. Generally, economists utilize a gross domestic factor or deflator to convert nominal GDP to real GDP. Which is also called as current dollar GDP or chained dollar GDP.

What is Real Gross Domestic Product?

Real GDP is an inflation adjusted measure that contemplates the value of all commodities and services manufactured by an economy in a given year, expressed in base year cost prices and is often referred to as unchanged cost price, inflation rectified GDP or unchanged dollar GDP. Unlike nominal GDP, real GDP can account for changes in cost price level and furnish a more precise figure of economic enhancement.

One assumption in this is that the cost prices of commodities and services remain constant during the phase of our study. If the cost prices vary, then there may be complications in contrasting GDPs. If we quantify the GDP of a nation in 2 successive years and see that the statistics for GDP of the current year is twice that of the previous year, we may conclude that the volume of manufacturing of the nation has doubled. But it is feasible that only cost prices of all commodities and services have magnified between the 2 years whereas the product manufacturing has remained unchanged. Hence, in order to contrast the GDP statistics (and other macroeconomic variables) of different nations or to contrast the GDP statistics of the same nation at different points of time, we cannot really depend on GDPs assessed at current market place cost prices.

The above mentioned is the concept that is explained in detail about Nominal and Real GDP. To know more, stay tuned to BYJUS.

Leave a Comment

Your email address will not be published. Required fields are marked *