Nominal and Real GDP


Nominal GDP is the sum of this year's output valued at this year's prices. The problem is that nominal GDP changes when prices change and when the quantity of output changes. We want to separate the desirable increase in the quantity of output from the undesirable increase in prices.

Real GDP is the sum of this year's output valued at base year prices. Prices from the base year are used to calculate real GDP for all years.


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