Nominal and Real GDP
GROUP: 7
GDP at current price is known as Nominal GDP.
The market value of final goods and services produced
within the country’s territory is Nominal GDP.
Formula to calculate Nominal GDP is C + I + G + (X – M)
Nominal GDP
Where, C = Private Consumption
I = Gross Investment
G = Government Investment
X = Exports
M = Imports
Nominal GDP
1. For example, a country reports $1 million in private
consumption, $5 million in gross investment, $2 million in
government investment, $1 million worth of goods exports
and $2 million worth of goods import. What is its nominal
GDP?
GDP = C + I + G + (X – M)
GDP = 1 + 5 + 2 + (1 – 2) million
GDP = $7 million
GDP at constant price is known as Real GDP.
Real GDP
The market value of final goods and services produced
within the country’s territory without considering effect of
inflation is Real GDP.
Formula to calculate Real GDP is Nominal GDP * (GDPD of
base year / GDPD of current year)
Where, GDPD is GDP Deflator
Real GDP
1. Suppose in the year 2015, the nominal GDP of a country
was $7 million. If the base year is 2000 during which the GDP
deflator of the country was 100 and in the year 2015 the
GDP deflator of the country was 130. What is the real GDP in
base year?
Real GDP = Nominal GDP * (GDPD of base year / GDPD of
current year)
Real GDP = 7 * (100/130)
Real GDP = 5.38 Million
Importance of
Real GDP
The increase in RGDP also means that the economy the
country is doing well.
It gives information of the performance of economy of the
country.
When RGDP increases, the employment of the country also
increases somehow.
What does Real GDP affect?
i. Population ii. Economy iii. Pollution
What does C mean in Nominal GDP formula?
MCQ
i. Export ii. Import iii. Private Consumption
What does GDPD stands for?
i. Gross Domestic Product Deflation
ii. Gross Domestic Product Deflator