Calculating nominal GDP

Nominal GDP = ∑ ptqt,  where p refers to price, q is quantity, and t indicates the year in question (usually the current year).
However, it can be misleading to do an apples-to-apples comparison of a GDP of $1 trillion in 2008 with a GDP of $200 billion in 1990. This is because of inflation. The value of one dollar in 1990 was far greater than the value of a dollar in 2008. In other words, prices in 1990 were different from prices in 2008. So if you want to really compare economic output (quantities), you can calculate GDP by using prices from a base year.

When you adjust nominal GDP for price changes (inflation or deflation), you get what is known as the Real GDP.


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