Currency
Gross domestic product (GDP) measures how much a country has produced in a given year. Whereas nominal GDP is the total, unadjusted worth of products and services, real GDP is adjusted to examine what the overall worth is considering what a currency can buy.
Nominal Gross Domestic Product
Nominal gross domestic product (GDP) refers to the total monetary value of products produced within a country during a given year. GDP is made up of all the exports, services, and goods produced in a country minus any imports. This data is not adjusted to reflect increases or decreases in inflation.
Real Gross Domestic Product
Real GDP is the total inflation-adjusted monetary value of products produced annually within a country. The dollar worth of products produced within a country is adjusted by the consumer price index. Adjusting what the monetary worth produced was with the net worth of what money can buy creates a total unaffected by inflation.
Comparisons
Nominal GDP shifted by the price index creates the real GDP. Thus, nominal gross domestic product cannot be accurately compared to gross domestic product rates in previous decades. Nominal gross domestic product rates tend to increase as inflation increases.
Adjustments for Inflation
Inflation-adjusted GDP rates allow production to be objectively compared with production from previous or later years. Since the Real GDP rate is adjusted to eliminate the effects of inflation, production from given years can be objectively compared.
What They Account For
While real GDP accounts for what money can buy, nominal GDP does not account for the relative worth of currency. Real GDP assesses real production overall, not just inflated currency. Nominal GDP gives the raw data for production in a given year, regardless of what the currency can actually buy.
