Gross Domestic Price is the most commonly used term nowadays. Almost all the countries use them to calculate the economic growth of their country. This event can be calculated either by real GDP or nominal GDP. And this fact will give the accurate that will help us to decide the economic status of our country. So that we will get to know whether it is improving or declining.
Real GDP vs Nominal GDP
The main difference between Real GDP and Nominal GDP is the Real Gross Domestic Product is to determine goods and services prices and are calculated once a year, and it will be compared with the previous years. Nominal Gross Domestic Product is used for calculating the current market price.
Real GDP is a kind of economic growth measurement that will calculate the price of the goods that are bought in a yearly manner. By comparing and calculating it with the help of a previous year, we would be able to know how our country is growing economically. It will help us find whether our country is economically improving or not.
Nominal GDP is used mainly for calculating the current market price. This kind of GDP is also important, and it is calculated in all the countries, and it will differ from year to year. This idea is very much important as if real GDP. It can be calculated only with the current and not with any previous values.
Comparison Table Between Real GDP and Nominal GDP
| Parameters of Comparison | Real GDP | Nominal GDP |
| Definition | Used to calculate the goods and services price once a year | Used to calculate the current market price |
| Rate | High | Low |
| Used by | Previous year or some other year prices | Current prices in the market |
| Country’s Economic Growth | Yes | No |
| Use | One or two times | Can be done multiple times |
What is Real GDP?
Real Gross Domestic Product is used for measuring the price of the goods that we buy in our life. And they are calculated every year. It compares the price from the current year to the previous year. To calculate the real GDP, we need to have the value of the nominal GDP. Then, only we would be able to calculate that. It is calculated with the help of a formula so that the calculation becomes simple.
It is an interesting topic which is taught in economics. To understand more about this and would like to do research on this, then an individual should opt for higher studies in economics. It is a very much needed topic nowadays because everything is calculated nowadays daily. It is very important in all the countries because it is the only thing that will help us to understand how the economy of our country is doing whether it is going down or performing well.
Only when we calculate the real GDP can we understand our country’s economic growth. If they find it to be improving, then the country’s economic growth is also improving. If they find it to be decreasing, then the country’s economic growth is found be to decreasing as well. Many countries have the highest GDP as well.
What is Nominal GDP?
Nominal GDP is a type of gross domestic product that is used to calculating the current market value and their prices. It is used to see the growth figure. It is used with the help of a formula. Once you all the pieces together, you can calculate them. In this fast-moving world, calculating nominal GDP is also important, like how we calculate real GDP.
Nominal GDP will be calculated every year in all the counties. Sometimes there might be a huge difference, and sometimes there will be a minimal difference. Because the current price will keep on changing and it will not remain the same. It depends on the inflation that happens when we calculate. It should be calculated properly. Otherwise, it will be misled. Calculating the current price will keep on changing, and it is not an easy task.
The nominal GDP might look greater or less, but it depends totally on inflation. We calculate this kind of GDP with the output, which is current, and the market price, which is current. These two quantities will be calculated, which in turn will give the result of the nominal GDP of the current market price. The calculated price will sometimes be higher than the calculated value that occurs in the real GDP.
Main Differences Between Real GDP and Nominal GDP
- In Real Gross Domestic Product, it is mainly done for calculating the goods and services price of the year. Nominal Gross Domestic Product is used for calculating the current market price.
- The rate that will occur after calculating the real GDP is considered low. But the rate that will occur after calculating the nominal GDP is considered to be high.
- Real GDP is calculated for a maximum of one or two times in a year. But nominal GDP is calculated many times because of the change in the current market price.
- Real GDP is mainly used for analysing the country’s economic growth. But nominal GDP cannot analyse the country’s economic growth.
- Real GDP uses the previous year or some year prices. But nominal GDP only uses the current market price.
Conclusion
Calculating GDP is very important for the economic growth of the country. The reason nominal GDP is still used and is not used in economic growth is only with the help of nominal GDP we can calculate the real GDP. Because while calculating the real GDP, we need the value of nominal GDP in that formula to proceed further with the calculation part.
This type of subject is mainly taught in economics. This can be taught at the school level as well. But students will get only the basic introduction to this topic. They won’t be able to understand them thoroughly. If they want to learn more about this in further detail or if they want to implement it in some of their projects, then they should opt for this as a separate subject during their study at college.
References
- https://www.sciencedirect.com/science/article/pii/S0022199603000977
- https://www.sciencedirect.com/science/article/pii/S0165188916300665