The following article provides a clear understanding of how each form of GDP is calculated, how they are different to one another and what they represent about a country’s economy.GDP is the measure of the total goods and services produced by a country. Nominal GDP vs Real GDP. However, the confusion still exists that which one better indicates the country’s progress than the other. There are a number of economic measures that are used to determine variable aspects of an economy. Real GDP is useful because it shows the actual production of goods and services and not the fluctuations in the value of the currency or changes in price levels.• GDP is one of the most commonly used economic measures that represent the strength of an economy by showing the value of the total goods and services that are produced by a country.• Nominal GDP does not take into account the changes in the prices (due to inflation/deflation) and is calculated at current market prices for that month or quarter.• Real GDP, on the other hand, takes into account the effects of inflation and deflation and shows the actual value of the total goods produced.Coming from Engineering cum Human Resource Development background, has over 10 years experience in content developmet and management. Difference between Nominal GDP vs Real GDP. GDP is one of the most commonly used economic measures that represent the strength of an economy by showing the value of the total goods and services that are produced by a country. Take a read of this article to know the differences between nominal and real GDP and it may also help you to overcome your confusion.Nominal Gross Domestic Product is defined as a GDP measure, expressed in absolute terms. The factory produces 1000 gloves a month, at $5 per glove then the GDP for this factory for one month would be $5000 (which will add onto to the country’s total GDP). Since this value does not include inflationary effects it can be compared to GDP values across a number of years.Real GDP and nominal GDP are both very important calculations made to understand the strength of a country’s economy. 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. To calculate the real GDP this 2% inflation would have to be stripped out to give a real GDP of $823 Billion. The raw GDP data, before inflation is called Nominal GDP. Gross Domestic Product (GDP) of a country is the monetary value of all goods and services produced within the country during a specified time period. Let’s take one glove producing factory’s GDP as an example. Nominal GDP is the measure of the annual production of goods or services at the current price whereas Real GDP is the measure of the annual production of goods or services calculated at actual price without considering the effect of Inflation and hence Nominal Gross Domestic Product is considered a more apt measure of GDP. The most important difference between nominal and real gdp is that Nominal GDP is the GDP without the effects of inflation or deflation whereas you can arrive at Real GDP, only after giving effects of inflation or deflation. The nominal GDP measures the value of total goods and services produced in an economy in current monetary terms, whereas real GDP measures the value of goods and services after removing all inflationary effects.Nominal GDP is useful in understanding the actual value of goods and services that a country produces or that a person can afford at the current period of time, and shows what currency can actually buy. The country’s inflation level is currently at 2%. Real GDP is considered as a true indicator of country’s economic growth because it exclusively considers the production and free from price changes or currency fluctuations.The basic differences between Nominal and Real GDP are discussed as under:These two exhibits the country’s financial soundness, whereby Real GDP is given preference over Nominal GDP, it makes the comparison easy for between different financial years.
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