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Questions
Distinguish between Real Gross Domestic Product (GDP) and Nominal Gross Domestic Product (GDP).
Using a suitable numerical example, distinguish between Real Gross Domestic Product (GDP) and Nominal Gross Domestic Product (GDP).
Solution
| Basis of Difference | Nominal GDP | Real GDP |
| Meaning | It is the market value of final goods and services produced within the domestic boundary of a country in an accounting year, estimated at current year prices. | It is market value of final goods and services produced within the domestic boundary of a country in an accounting year, estimated at base year prices. |
| Also known as | It is also known as GDP at current prices. | It is also known as GDP at constant prices. |
| Examples | Nominal GDP = Current Year Quantity × Current Year Prices | Real GDP = Current Year Quantity × Base Year Prices |
| Indicator of economic growth | It is not a true indicator of economic growth of a country. | It is a true indicator of economic growth of a country. |
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