Question

Define Nominal Gross Domestic Product. How is it different from Real Gross Domestic Product?

Hint:

To distinguish between Nominal GDP and Real GDP, remember that Real GDP is adjusted for inflation, while Nominal GDP is not. Real GDP provides a more accurate picture of an economy's performance over time.

Answer 1

Nominal Gross Domestic Product (Nominal GDP) refers to the total value of all goods and services produced within a country’s borders in a given time period, calculated using current prices. It does not adjust for inflation or deflation and represents the market value at the time of production. Real Gross Domestic Product (Real GDP), on the other hand, is Nominal GDP adjusted for inflation or deflation. It reflects the true value of goods and services produced by removing the effects of price changes, thus enabling better comparisons of economic performance over time. The key difference is that Nominal GDP uses current prices without adjusting for inflation, while Real GDP adjusts for inflation to reflect the true value of goods and services.