Nominal vs. Real GDP

Nominal GDP is the total goods and services (expressed in dollars) produced this year using today’s prices.

Real GDP is the total goods and services (expressed in dollars) produced this year using base-year prices.

Nominal GDP DOES NOT account for inflation.

Real GDP DOES account for inflation.

How to calculate Nominal GDP

Scenario: Given the current year is Year 3, calculate the Nominal GDP.

Year 1Year 2Year 3
Px $4$6$8
Py $8$12$10
Qx 81215
Qy 6107

Quantities {Today}
Qx = 15
Qy = 7

Prices {Today}
Px = $8
Py = $10

Nominal GDP = (Qx x Px {today}) + (Qy x Py {today})
Nominal GDP = (15 x $8) + (7 x $10)
Nominal GDP = ($120) + ($70)
Nominal GDP = $190

Answer: In today's prices, the Nominal GDP for Year 3 is $190.

How to calculate Real GDP

Scenario: Assuming the base year is Year 1, calculate the Real GDP for Year 3.

Year 1Year 2Year 3
Px $4$6$8
Py $8$12$10
Qx 81215
Qy 6107

Quantities {Today}
Qx = 15
Qy = 7

Prices {Base Year}
Px = $4
Py = $8

Real GDP = (Qx x Px {base year}) + (Qy x Py {base year})
Real GDP = (15 x $4) + (7 x $8)
Real GDP = ($60) + ($56)
Real GDP = $116

Answer: When compared to base-year prices in Year 1, the Real GDP for Year 3 is $116.

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