Nominal gross domestic product (GDP) is the value of all the final goods and services at current market prices. In other words, it is the GDP calculated at the current market prices.
It takes into account factors such as inflation, price changes, changing interest rates, and money supply at the time of determining GDP.
The mathematical formula to calculate nominal GDP is as follows:
GDP = C + I + G + (X – M)
C = Consumption
I = Investment
G = Government spending
X = Exports
M = Imports
Impact of inflation on nominal GDP
- As the nominal GDP is calculated at current market prices, the growth in the nominal GDP indicates that there is a price rise instead of an increase in the amount of goods produced.
- The rise in inflation increases the nominal GDP.
Nominal GDP plays a significant role in calculating the GDP deflator as well as determining the real GDP.
To calculate nominal GDP, the value of goods is taken at the current year’s prices, which is achieved by using the consumer price index of the basket of goods.
This concludes the topic of nominal GDP formula, which plays an important role in determining the nominal GDP of an economy. To learn more such amazing concepts on economics for class 12, stay tuned to our website.