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GDP Nominal Vs GDP Real – Free PDF Download

 

WHAT  IS  GDP?

  • GDP is the total value of all goods and services produced in the economy in  a given period of time.

NOMINAL  GDP

  • It refers to an estimate of the total value of an economy’s production and services; usually  considered over a one year period.
  • It is evaluated at present market prices.

EXAMPLE

  • In 2019- We produced 40 pens & 30 books.
  • If price of 1 Pen is Rs.10 and price of 1 Book is 20
  • Thus, (40 × 10) + (30 ×20) = 400+600 = 1000 (It means in 2019 we added Rs.1000 to our GDP)
  • Suppose till 2018,
  • Our overall GDP value was 10,000. In 2019, we added Rs. 1000 to our GDP.
  • Thus the GDP growth rate is 10%
  • This is called Nominal GDP rate.

REAL  GDP

  • While nominal GDP is calculated at the current market price,
  • Whereas real GDP adjusts for price changes due to inflation.
  • Suppose in 2012, Price of Pen & Book was 5 & Rs. 10 respectively.
  • In 2012, We produced same number- 40 pens & 30 books.
  • Thus, (40 × 5) + (30 ×10)= 200+300= 500
  • Thus, In 2012 we produced Rs.500 value of goods whereas in 2019 we produced Rs. 1000 value of goods.
  • But the  important  thing  is-  we  produced  same  quantity of goods i.e. 40 pens & 30 books.

NOMINAL  GDP  VS  REAL  GDP

  • Remember till 2018, Our GDP was Rs. 10,000
  • Thus in 2019. Nominal GDP growth rate will be @ 10% (current market price- Rs.1000)
  • Real GDP growth rate will be @ 5% (2012 price- Rs.500)

 

 

 

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