Nominal GDP vs Real GDP

Nominal GDP
- it is the value of out put, produced in current prices
*it can increase from year to year if out put or price increases











Real GDP
-It is the value of our put produced in constant or based year prices
* it is adjusted for inflation
*it can only increase from year to year if out put increases

Price Index - Measures inflation by tracking changes in the market basket of goods compared with that, in a base year

Price of market basket of goods currencies/ Price of market basket of goods in based year x 100

GDP Deflater
- A price index use to adjust, from nominal to real GDP
Nominal GDP/ real GDP x 100

• in the base year GDP deflater is always equal to 100, for years after the base year the GDP Deflater is greater than 100

How do we calculate inflation rate?
New deflater= Old deflater/ Old deflater x 100