Question

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

Hint:

To distinguish between Real GDP and Nominal GDP, remember that Real GDP is adjusted for inflation to reflect the true value of goods and services, while Nominal GDP is not.

Answer 1

Real Gross Domestic Product (Real GDP) is the measure of the value of all goods and services produced within a country's borders in a specific time period, adjusted for inflation or deflation. It is used to compare the economic performance of a country over time by eliminating the effect of price changes. Nominal Gross Domestic Product (Nominal GDP) is the measure of the value of all goods and services produced in a country in a given time period, but without adjusting for inflation or deflation. It is calculated using current prices during the year the goods and services are produced. The key difference between the two is that Real GDP accounts for inflation, while Nominal GDP does not.