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What is the difference between real GDP and nominal GDP?

Posted on April 16, 2014 at 10:20 AM

Real GDP is output that has been adjusted to hold the price level constant. This way we can measure the level of goods and services that are produced over a period of time without worrying about changes in the price level.


Nominal GDP has not been adjusted for changes in the price level and reflects the market value of all goods and services in the year everything was produced.


 

Therefore, real GDP is more important than nominal GDP for measuring economic growth.


How to calculate the Real GDP:

Real GDP = Nominal GDP / GDP Price Index


This No Bull Review video shows reviews real GDP and nominal GDP.

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