Question

With the help of appropriate examples, briefly discuss Real GDP and Nominal GDP.

Answer 1

1. Nominal GDP:  It is the market value of a country's final goods and services produced within its domestic territory during an accounting year, as evaluated using current-year prices. It may rise despite no increase in the quantity of output in the economy.
   Nominal GDP = Current prices × Current output 
2. Real GDP: It refers to the market value of final goods and services produced within a country's domestic territory during an accounting year, as evaluated using base year prices. It rises only when there is an increase in the quantity of output in an economy.
   Real GDP = Base year prices × Current output
3. 
   

   Commodity	Output in 2022	Price in 2015	Price in 2022	Nominal GDP	Real GDP
   A	40	10	15	600	400
   B	20	10	15	300	200
   C	10	15	20	200	150
   D	50	12	15	750	600
   				1850	1350

4. Because of the current year's high prices, nominal GDP exceeds real GDP. Because there is no common foundation of comparison, the nominal GDP of any year cannot be compared to the nominal GDP of any other year.
5. Real GDP, on the other hand, may be compared because the prices of the base year remain constant, and increases in real GDP reflect changes in output.