Nominal GDP is the market value of the final goods and services produced by an
economy in a given period of time.
economy in a given period of time.
nominal GDP = price level × real GDP
Macroeconomics - Nominal vs. Real GDP, and the GDP Deflator
The main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.
Nominal values of GDP (or other income measures) from different time periods can differ due to changes in quantities of goods and services and/or changes in general price levels. As a result, taking price levels (or inflation) into account is necessary when determining if we are really better or worse off when making comparisons between different time periods. Values for real GDP are adjusted for differences in prices levels, while figures for nominal GDP are not.
The GDP Deflator
The GDP deflator is an economic metric that converts output measured at current prices into constant-dollar GDP. This includes prices for business and government goods and services, as well as those purchased by consumers. This calculation shows how much a change in the base year's GDP relies upon changes in the price level.
If we wish to analyze the impact of price changes throughout an economy, then the GDP deflator is the preferred price index. This is because it does not focus on a fixed basket of goods and services and automatically reflects changes in consumption patterns and/or the introduction of new goods and services.
Nominal values of GDP (or other income measures) from different time periods can differ due to changes in quantities of goods and services and/or changes in general price levels. As a result, taking price levels (or inflation) into account is necessary when determining if we are really better or worse off when making comparisons between different time periods. Values for real GDP are adjusted for differences in prices levels, while figures for nominal GDP are not.
The GDP Deflator
The GDP deflator is an economic metric that converts output measured at current prices into constant-dollar GDP. This includes prices for business and government goods and services, as well as those purchased by consumers. This calculation shows how much a change in the base year's GDP relies upon changes in the price level.
If we wish to analyze the impact of price changes throughout an economy, then the GDP deflator is the preferred price index. This is because it does not focus on a fixed basket of goods and services and automatically reflects changes in consumption patterns and/or the introduction of new goods and services.
