Difference Between Real Gdp And Nominal Gdp - 1395 Words

There exist some differences between real GDP and nominal GDP. Real GDP is the measure (macroeconomic measure) of economic output that has been adjusted for a change in price. The meaning for this adjustment is that inflation or deflation has been factored in the computation of real GDP. It is the aspect of adjustment for price changes that makes a transformation of the money value to become a nominal value (Tucker 230). Nominal GDP refers to the value of Gross Domestic Product that has not factored in the adjustment for inflation. Nominal GDP is also called chained dollar GDP or current dollar GDP. There is a relationship that exists between Real GDP and Nominal GDP. The definition of nominal GDP takes into consideration the market value of goods that have been produced in the region. The market value of assets depends on the production of goods in quantities and their prices. On the other hand, real GDP takes into consideration the changes in the price of goods that results from in flationary pressures (Mankiw 517). Nominal GDP is known to change in situations where there is a corresponding shift in the price of goods from one period to the other. The actual output does not necessarily have to change for Nominal GDP for change. Real GDP can be calculated with the use of prices derived from a given base year, and this helps in the adjustment to changes in price. Through this perspective, it becomes possible for the real GDP to measure accurately changes relating to outputShow MoreRelatedGross Domestic Product And Gross National Income858 Words   |  4 Pagesthe production of the entire economy by a tool known as the Gross Domestic Product (GDP). GDP is defined as the total market value of all final goods and services, produced within a country.1 It summarizes the entire production of an economy into a single number (GDP) and it gauge s a country standard of living. Throughout this essay we will aim to explain both the main components of GDP and it’s differences from other forms of economic measurements, as well as touch upon it’s deficienciesRead MoreWhy Do Economists Use Real GDP Rather Than Nominal GDP To Gauge Economic Well2235 Words   |  7 Pagesï » ¿1. Why do economists use real GDP rather than nominal GDP to gauge economic well-being? Real GDP is the production of goods and services valued at constant prices. Nominal GDP is the production of goods and services valued at current prices. Real GDP rather than nominal GDP to gauge economic well-being because real GDP is not affected by changes in prices, so it reflects only changes in the amounts being produced. 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