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Real GDP is an example of the distinction between real and nominal values in economics.Nominal gross domestic product is defined as the market value of all final goods produced in a geographical region, usually a country; this depends on the quantities of goods and services produced, and their respective prices.
Real GDP can be used to calculate the GDP growth rate, which indicates how much a country's production has increased (or decreased, if the growth rate is negative) compared to the previous year, typically expressed as percentage change. The economic growth can be expressed as real GDP growth rate or real GDP per capita growth rate.
The nominal GDP of a given year is computed using that year's prices, while the real GDP of that year is computed using the base year's prices. The formula implies that dividing the nominal GDP by the real GDP and multiplying it by 100 will give the GDP Deflator, hence "deflating" the nominal GDP into a real measure. [1]
Nominal GDP in a particular period reflects prices that were current at the time, whereas real GDP compensates for inflation. Price indices and the U.S. National Income and Product Accounts are constructed from bundles of commodities and their respective prices. In the case of GDP, a suitable price index is the GDP price index.
Nominal GDI and Nominal gross domestic product (GDP) are exactly identical, yet real GDI and real gross domestic product (Real GDP) are different; real GDP is calculated by keeping the price of each domestic production constant between two years, while real GDI is calculated by deflating GDP with the purchasing power of money. As such, real GDI ...
For instance, if a loan offers a 4% nominal interest rate and inflation is 2%, the real interest rate is approximately 2%. The world of finance has a somewhat different definition.
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), Gross national income (GNI), net national income (NNI), and adjusted national income (NNI adjusted for natural resource depletion – also called as NNI at factor cost).
The nominal interest rate is a simple way of expressing the cost of a loan or the return on a deposit. The real interest rate accounts for the effect of inflation on the purchasing power of ...