# What is the difference between nominal GDP and real GDP?

Nominal GDP is a measure of the Gross Domestic Product in absolute terms, while real GDP is a measure that factors in the rate of inflation.

The inflation rate changes from year to year in most cases, so using real GDP is a good way to compare the GDP rates of different years. Economists use a metric called the GDP Deflator to determine the real GDP.

Economists use variables such as the GDP to measure the strength of the economy. When they need to compare the GDP rates of different periods, however, using this statistic has problems. This is because the prices for goods and services change over time.

If the GDP rates of growth for the years 1978 and 2008 are the same, for instance, this does not mean that the real value of all goods and services in the country were the same during both periods. Economists need to take the fact that the prices were higher in 2008 than in 1978 into account to compare the two years accurately.

Because prices for products and services tend to rise over time, the inflation rate is positive in most years. For this reason, nominal GDP rates are typically higher than real GDP rates.

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Q&A Related to "What is the difference between nominal GDP and..."
 1. Calculate GDP by adding up all the expenditures local to a country, as in: GDP = C + I + G + NX. Where C is equal to the sum of consumer expenditures on durable and nondurable http://www.ehow.com/how_6207816_compute-nominal-gd...
 Nominal GDP is GDP evaluated at current market prices. Therefore, the nominal GDP for 2005 is calculated by taking the quantities of all (final, excluding the intermediate) goods http://wiki.answers.com/Q/What_is_the_formula_for_...
 A gross domestic product (GDP) figure that has not been adjusted for inflation. Also known as "current dollar GDP" or "chained dollar GDP". Investopedia Says: http://www.answers.com/topic/nominal-gdp
 Real gross domestic product - the output of goods and services produced by labor . http://www.chacha.com/question/what-is-nominal-gdp...
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Nominal GDP is calculated by the expenditure method where GDP = consumption + gross investment + government spending + (exports ? imports), or, GDP = C + I + G ...
You can calculate the inflation rate using the GDP deflator. GDP deflator is calculated by dividing a country's nominal GDP by its real GDP. Inflation is a measure ...
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