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Explain the difference between nominal and real GDP. Which of the two is a better measure...

Explain the difference between nominal and real GDP. Which of the two is a better measure of economic growth? Why?

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Answer #1

Nominal GDP is the GDP at the current price and the real GDP is the GDP at the real price. The real GDP is adjusted for the inflation or the price rise in the economy where as the nominal GDP is not.

The Real GDP is the better measure of the economic growth because when adjusted for the inflation, it shows the exact growth in the economy. An increase in the price due to higher demand will show the inflated GDP and that hides the exact growth. When adjusted at the base price we can tell how much the growth has been actually done.

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