Real and Nominal GDP

• GDP stands for Gross Domestic Product (GDP) and is the measure of the total economic output of the goods and services of a country. It is usually expressed on an annual basis but is sometimes expressed on a quarterly basis within a year.
• Real GDP is equal to the economic output adjusted for the effects of inflation. Nominal GDP is an economic output without the inflation adjustment.
• Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices (or constant prices).
• When comparing the GDP of two or more years, real GDP is used because, by removing the effects of inflation, the comparison of the different years focuses solely on volume.
• The year-to-year comparison for real GDP requires what is called a base year.
• The base year is nothing more than the year to which all the other years are adjusted.
• Nominal GDP is simply the value of GDP at the current prevailing prices.
• Nominal GDP is usually higher than real GDP because inflation is typically a positive number.
• Nominal GDP is used when comparing different quarters of output within the same year.

Source: NCERT