# Difference between Nominal GDP and Real GDP

Last Updated : 21 Jul, 2023

GDP or Gross Domestic Product is the total money value of all the goods and services manufactured within the geographical boundaries of a country during a period of one year. Gross in GDP means that depreciation is included in the monetary value of the goods and services. Domestic signifies that goods and services included in GDP are produced within the domestic boundaries of the country. However, product means that only final goods and services will be included.

## Nominal GDP or GDP at Current Price

Nominal GDP is the Gross Domestic Product of a country of a given year, estimated on the basis of the price of the goods and services of the same year. The formula for determining the Nominal GDP of a country is,

## Real GDP or GDP at Constant Price

Real GDP is the Gross Domestic Product of a country of a given year, estimated on the basis of the price of the goods and services of a base year. The formula for determining the Real GDP of a country is,

The Real GDP of a country can be more, equal, and less than its Nominal GDP.

Real GDP > Nominal GDP: When the price level of goods and services in the base year is more than the price level of goods and services in the current year.

Real GDP = Nominal GDP: When the price level of goods and services in the base year is the same as the price level of goods and services in the current year.

Real GDP < Nominal GDP: When the price level of goods and services in the base year is less than the price level of goods and services in the current year.

## Difference between Nominal GDP and Real GDP

### Is Nominal GDP better or Real GDP?

Real GDP is better than Nominal GDP because of the following reasons:

#### 1. Helps in the determination of the effect of increased production

Real GDP helps an economy to determine the effect of increased production levels of goods and services within a year. Real GDP is better for this determination because even though there is no change in the physical or actual production of goods and services, a change in their price affects the value of Nominal GDP.

#### 2. Better Periodic Comparison

Real GDP is better than Nominal GDP for making a periodic comparison in the production of physical output of goods and services of a country over different years.

#### 3. Facilitates International Comparison

The Real GDP of an economy also facilitates a better international comparison of the economic performance across the countries.

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