Question

Briefly distinguish between Nominal GDP and Real GDP.

Answer 1

There exist a difference between the nominal GDP and the real GDP. Nominal GDP refers to the calculation of the amount of the goods and services produced in an economy during a financial year by taking into account the current level of prices, whereas, real GDP refers to the calculation of amount of goods and services produced in an economy during a financial year by taking into account the constant level of prices that is usually given by the prices in base year. It might be possible that nominal GDP will increase solely due to the inflation because it is not adjusted for the inflation, whereas, real GDP is adjusted for the inflation.