Difference Between Nominal GDP and Real GDP

Nominal GDP vs Real GDP

First of all, the term GDP stands for Gross Domestic Product, and it is defined as the cost of all the services and goods that are available in a country. Nominal GDP indicates the present-time prices of the types of services available, and the goods produced, whereas, Real GDP indicates costs according to various base years. Growth Domestic Product is the rate of services and final goods, therefore, if there is a growth in the GDP, it does not necessarily mean that there is also a growth in the services and goods provided.

Gross Domestic Product is measured in current dollars, which refers to the year in which the services and goods are produced. This would indicate the Nominal GDP, as current dollars can also be specified as nominal dollars. Real GDP is the estimation of national output, but accounts for inflation as well. Inflation refers to the rise in prices of goods on a yearly basis, and is the macroeconomic gauge of the structure of an economy. Inflation indicates the income status of an economy.

The formula to calculate Real GDP is: Nominal GDP/GDP Deflator x 100. The Real GDP calculation for the year is the same as the amount determined for Nominal GDP, that is stated in the price level for the base year. This shows the growth of the Nominal GDP as a percentage, and which has been accustomed to allow for inflation. Real GDP focuses on price changes, and the inflation rate, that occurs throughout the year. The size of a population can affect the Real GDP. It is found that industries in many countries have grown at a fast pace due to domestic GDP.

Statistical analysis has shown a wider outlook in the growth of the economic conditions, and the growth has been even more evident in the recent years. Therefore, a constant change in business strategies and plans is required. Basic growth has been seen in the E & M industry, although, the present financial crisis has lead to a deceleration in this industry by 8.0 percent. This is due to the general decrease in market activity, but growth is predicted to resume shortly. The E & M industries include the sectors of Television, Film, Print and Media, Radio Advertising, Animation, the Gaming and VFX industry, and the Internet Advertising industry.

It is essential to calculate GDP on an annual basis for all types of major sectors, like government outlays, public consumption, exports and imports, and investments that arise.

The basic formula for calculation is: GDP = C + G + I + NX.
‘C’ ‘“ Refers to all types of consumer spending or private consumption that occurs within a country’s economy.
‘G’ ‘“ This refers to the amounts of government spending.
‘I’ ‘“ Refers to the capital expenditure of businesses.
‘NX’ ‘“ This refers to the net exports of a country, including exports and imports.

Summary: The main differences between Nominal GDP and Real GDP are:

1.Nominal GDP represents the current prices of all types of services, and goods produced.
2.Real GDP is the costs of the services rendered, and goods produced, that is indicated by various base years.

Sharing is caring!