Gross domestic product (GDP) defines the economic worth of products and services manufactured in a country in a definite financial year. It also accounts for the revenue received by foreign citizens locally and the insufficient income earned by the country’s residents abroad.
Whenever the measurement of GDP is at current values, it represents the nominal GDP and the real GDP is evaluated at fixed prices.
Both the GDPs are financial tools for estimating a nation’s economic development and growth. However, there is still some confusion on identifying the GDP that indicates a nation’s development in a better way. This article will look into the variations between nominal and real GDPs.
Also Check: Relationship between GDP and Welfare
Nominal GDP Definition
Nominal gross domestic product is GDP that is evaluated at the present market prices. GDP is the financial equivalent of all the complete products and services generated within a nation in a definite time.
The nominal varies from the real and incorporates changes in cost prices due to an increase in the complete cost price. Generally, economists utilise a gross domestic factor to change the nominal GDP to the real GDP, which is also known as current dollar GDP or chained dollar GDP.
Quick link: MCQ on GDP Deflator
Real GDP Definition
Real GDP is an inflation-adjusted calculation that analyses the rate of all commodities and services manufactured in a country for a fixed year. It is expressed in foundation year prices and referred to as a fixed cost price.
It is also known as inflation-corrected GDP or constant price GDP. The real GDP is regarded as a reliable indicator of a nation’s economic growth as it solely considers production and is free from currency fluctuations.
This article is ready reckoner for all the students to learn the difference between Nominal and Real GDP.
|Parameters||Nominal GDP||Real GDP|
|Meaning||The aggregate financial business value manufactured within a country is known as nominal GDP.||The measure of GDP was modified according to the changes in the general price level.|
|What is it?||Inflation without GDP||Inflation-adjusted GDP|
|Communicated in||Present year prices||Beginning year prices or regular prices|
|Uses||Compares different quarters of a particular year||Compares two or more financial years|
|Financial growth||Analysing is not easy||Measures economic growth in an excellent manner|
The above-mentioned concept explains what is Nominal and Real GDP. To know more, stay tuned to our website.