Real GDP vs Nominal GDP: Difference and Comparison

Gross Domestic Price is the most commonly used term nowadays. Almost all countries use them to calculate the economic growth of their country.

This event can be calculated either by real GDP or nominal GDP. And this fact will give the accuracy that will help us to decide the economic status of our country so that we will get to know whether it is improving or declining.

Key Takeaways

  1. Real GDP measures a country’s economic output adjusted for inflation, while nominal GDP calculates the value of goods and services without considering inflation.
  2. Real GDP provides a more accurate assessment of economic growth over time, while nominal GDP can be misleading due to changes in price levels.
  3. Economists use real GDP to compare the economic performance of different countries or periods, whereas nominal GDP is more commonly used for short-term analysis.

Real GDP vs Nominal GDP

Real GDP adjusts for inflation by measuring the economic output of a country at constant prices. This means that real GDP reflects changes in the quantity of goods and services produced. Nominal GDP measures the economic output of a country at current prices without adjusting for inflation. In other words, it represents the total value of goods and services produced by a country in a given period.

Real GDP vs Nominal GDP

Real GDP is a kind of economic growth measurement that will calculate the price of the goods that are bought in a yearly manner. By comparing and calculating it with the help of a previous year, we would be able to know how our country is growing economically.

It will help us find whether our country is economically improving or not.

Nominal GDP is used mainly for calculating the current market price. This kind of GDP is also important, and it is calculated in all countries, and it will differ from year to year.

This idea is very much important as if real GDP. It can be calculated only with the current and not with any previous values.

Comparison Table

Parameters of ComparisonReal GDPNominal GDP
DefinitionUsed to calculate the goods and services price once a yearUsed to calculate the current market price
RateHighLow
Used byPrevious year or some other year pricesCurrent prices in the market
Country’s Economic GrowthYesNo
UseOne or two timesCan be done multiple times

What is Real GDP?

Real Gross Domestic Product is used for measuring the price of the goods that we buy in our life. And they are calculated every year.

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It compares the price from the current year to the previous year. To calculate the real GDP, we need to have the value of the nominal GDP.

Then, only we would be able to calculate that. It is calculated with the help of a formula so that the calculation becomes simple.

It is an interesting topic which is taught in economics. To understand more about this and would like to do research on this, then an individual should opt for higher studies in economics.

It is a very much needed topic nowadays because everything is calculated daily nowadays. It is very important in all countries because it is the only thing that will help us to understand how the economy of our country is doing, whether it is going down or performing well.

Only when we calculate the real GDP can we understand our country’s economic growth? If they find it to be improving, then the country’s economic growth is also improving.

If they find it to be decreasing, then the country’s economic growth is found to be decreasing as well. Many countries have the highest GDP as well.

real gdp

What is Nominal GDP?

Nominal GDP is a type of gross domestic product that is used to calculate the current market value and its prices. It is used to see the growth figure. It is used with the help of a formula.

Once you have all the pieces together, you can calculate them. In this fast-moving world, calculating nominal GDP is also important, like how we calculate real GDP. 

Nominal GDP will be calculated every year in all the counties. Sometimes there might be a huge difference, and sometimes there will be a minimal difference.

Because the current price will keep on changing and it will not remain the same. It depends on the inflation that happens when we calculate.

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It should be calculated properly. Otherwise, it will be misled.

Calculating the current price will keep on changing, and it is not an easy task. 

The nominal GDP might look greater or less, but it depends totally on inflation. We calculate this kind of GDP with the output, which is current, and the market price, which is current.

These two quantities will be calculated, which in turn will give the result of the nominal GDP of the current market price. The calculated price will sometimes be higher than the calculated value that occurs in the real GDP. 

nominal gdp

Main Differences Between Real GDP and Nominal GDP

  1. In Real Gross Domestic Product, it is mainly done for calculating the goods and services price of the year. Nominal Gross Domestic Product is used for calculating the current market price.
  2. The rate that will occur after calculating the real GDP is considered low. But the rate that will occur after calculating the nominal GDP is considered to be high.
  3. Real GDP is calculated a maximum of one or two times in a year. But nominal GDP is calculated many times because of the change in the current market price.
  4. Real GDP is mainly used for analysing the country’s economic growth. But nominal GDP cannot analyse the country’s economic growth.
  5. Real GDP uses the previous year’s or some year’s prices. But nominal GDP only uses the current market price.
Difference Between Real GDP and Nominal GDP
References
  1. https://www.sciencedirect.com/science/article/pii/S0022199603000977
  2. https://www.sciencedirect.com/science/article/pii/S0165188916300665

Last Updated : 02 August, 2023

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27 thoughts on “Real GDP vs Nominal GDP: Difference and Comparison”

  1. The comparison between real GDP and nominal GDP is insightful and helps clarify the significance of economic indicators.

    Reply
  2. The comparison of real GDP and nominal GDP highlights the significance of accurate economic measurements and the impact of inflation on economic indicators.

    Reply
  3. Understanding the calculation and significance of real GDP is crucial for informed analysis of a country’s economic status.

    Reply
  4. Real GDP and nominal GDP are essential economic indicators that offer unique insights into a country’s economic progress and the impact of inflation on growth measurements.

    Reply
  5. Real GDP and Nominal GDP provide valuable information for assessing the economic growth of a country. Understanding the key differences between these two measurements is crucial for accurate analysis.

    Reply
  6. The distinction between real and nominal GDP provides valuable insights into economic performance and the impact of inflation on calculations.

    Reply
  7. Real GDP is pivotal for understanding a country’s economic growth trajectory and provides a reliable measure of economic performance.

    Reply
  8. The importance of real GDP to understand a country’s economic growth is highlighted effectively. It provides valuable insights into economic progress.

    Reply
  9. Real GDP’s role in measuring a country’s economic growth is indispensable and provides valuable insights into economic performance over time.

    Reply
    • Absolutely, understanding the impact of inflation on economic growth is essential for reliable economic assessments.

      Reply

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