Question

Distinguish between real and nominal gross domestic product.

Answer 1

Real gross domestic product may be defined as the gross money value of final goods and services produced within the domestic territory of a country. Gross money value is calculated at constant prices and therefore real gross domestic product indicates real changes. On the other hand, nominal gross domestic product is the money value of final goods and services produced within the domestic territory of a country. Gross money value in the case of nominal GDP is calculated at current prices. Therefore the only difference between real GDP and nominal GDP is that while real GDP is calculated using constant prices, nominal GDP is calculated using current prices.