Nominal and Real GDP

Nominal GDP - Value of output produced in current prices  

• P x Q 
• Can increase from year to year if either output or price increase 

Real GDP - Value of output produced in constant or based year prices  

• Adjusted for inflation  
• Based Price x Quantity 
• Can increase from year to year only if output increases  

Price index - measure inflation by tracking changes in the price of a market basket of goods compared to the base year 

• Price of market basket of goods in current year / price of market basket of goods in base year 

GDP Deflator 

• Also a price index that is used to adjust from nominal to real GDP 
• In the base year the GDP deflator is
•  =100 Years after base years
• >100 For years before the base year  
• <100 (Nominal GDP/ Real GDP)  ×100 

Inflation 

• (New GDP deflator - Old GDP deflator / Old GDP deflator) ×100