Nominal GDP and Real GDP
1 Quick Explanation 1–3 min
Nominal GDP is measured at current prices; Real GDP at constant (base year) prices.
Real GDP strips out price changes, so it shows true growth in output.
2 Detailed Notes
Definition
Definitions
- Nominal GDP = Σ (Current year quantity × Current year price).
- Real GDP = Σ (Current year quantity × Base year price).
- Base year is a fixed reference year chosen by the government (India: 2011-12).
Key idea
Why Real GDP matters
- If prices rise 10% but output is unchanged, nominal GDP rises 10% — misleading.
- Real GDP isolates changes in quantity → the true measure of economic growth.
- Government policies target real GDP growth.
Formula
Formulas
Real GDP = Nominal GDP ÷ GDP Deflator × 100
Growth rate of real GDP = ((RGDP₂ − RGDP₁) ÷ RGDP₁) × 100Real GDP is nominal GDP adjusted for inflation using the GDP deflator.
Example
CBSE example style
A country produces 100 units at ₹10 (base year). Next year produces 110 units at ₹12. Nominal GDP₂ = 1320. Real GDP₂ = 110 × 10 = 1100. Growth in real terms = 10%.
In One Minute
Nominal GDP = current prices. Real GDP = base-year prices. Real GDP = Nominal ÷ Deflator × 100. Real growth = true growth.
Important for Exam
- ⭐ Numerical: compute real GDP from nominal and deflator.
- ⭐ Why real GDP is used to measure growth — 3 marks.
- ⭐ Base year concept.
- ⭐ Deflator > 100 → inflation present.
Watch & Learn
Watch on YouTubeNational income - Real and Nominal GDP - Class 12 -
by Rajat Arora
Why watch? Simple, with a numerical example.
Open on YouTube Watch on YouTubeNational income - Real and Nominal GDP - Class 12 -
by Rajat Arora
Why watch? Exam style numerical practice.
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