Difference between Nominal GDP and Real GDP
Basis | Nominal GDP | Real GDP |
|---|---|---|
| Meaning | Nominal GDP is the monetary value of all goods and services produced within the domestic boundaries of a country based on the price of the goods and services of the same year. | Real GDP is the monetary value of all goods and services produced within the domestic boundaries of a country based on the price of the goods and services of the base year. |
| What is it? | Nominal GDP is the Gross Domestic Product without any effect of inflation. | Real GDP is the inflation-adjusted GDP of a country. |
| Expressed | The Nominal GDP of a country is expressed in terms of current year prices of goods and services. | The Real GDP of a country is expressed in terms of base year prices or constant prices of goods and services. |
| Complexity | It is easy to calculate Nominal GDP. | It is quite difficult to calculate Real GDP. |
| Value of GDP | The value of Nominal GDP is much higher than the value of Real GDP because it takes current market changes into consideration. | The value of Real GDP is much lower than the value of Nominal GDP because it takes the market price of the base year into consideration. |
| Comparison with the previous GDPs | One can compare the Nominal GDP of different quarters of a country. | One can compare the Real GDP of different financial years of a country. |
| Economic Growth | One cannot easily analyze the economic growth of a country with its Nominal GDP. | One can easily analyze the economic growth of a country using its Real GDP, as it is a good indicator of economic growth. |
Difference between Nominal GDP and Real GDP
Nominal GDP and Real GDP are essential for evaluating economic health, making policy decisions, and conducting economic comparisons. Nominal Gross Domestic Product (GDP) measures the total value of all goods and services produced in an economy over a specific period (usually a year or a quarter) using current prices. Real Gross Domestic Product (GDP) measures the total value of all goods and services produced in an economy over a specific period, adjusted for inflation or deflation, using constant prices from a base year.
Table of Content
- What is Nominal GDP or GDP at Current Price?
- What is Real GDP or GDP at Constant Price?
- Difference between Nominal GDP and Real GDP
- Is Nominal GDP better or Real GDP?
- Nominal GDP and Real GDP – FAQs