Nominal gross domestic product (GDP) is GDP evaluated at current market prices. It is the total value of all goods and services produced in a given time period less the value of those made during the production process.
Learn more about Nominal GDP
The economy consists of connected activities that decide how resources are used. These activities involve making, sharing, and using goods and services, as well as other related tasks. People living in the economy need these goods and services.
There are several methods to assess the performance of the economy. Economists track different economic indicators like unemployment rates, inflation, retail sales, industrial output, and gross domestic product (GDP). GDP is a key measure of a country’s economic health. It represents the total value of all goods and services produced in a specific time frame, minus the value of resources used in the production process.
There are various kinds of GDP, such as real, actual, potential, and nominal. Nominal Gross Domestic Product measures the economic output of a country using current prices. This means it does not account for inflation or rising prices, which can make growth appear larger. All products and services included in nominal GDP are valued at the prices they were sold for in that year.
Nominal GDP Calculation
Nominal Gross Domestic Product is the overall value of all goods and services made in a certain economy. You can calculate Nominal Gross Domestic Product in a few different ways.
The first method is the expenditure approach. To use this method, you need to know some values, such as:
- Consumer Spending (C)
- Business Investment (I)
- Government Spending (G)
- Total Net Exports (X-M): This figure is derived by subtracting import expenditures from the total value gained from a country’s exports.
After you have these numbers, you can use them in the formula below:
Nominal GDP = C + I + G + (X-M)You can calculate Nominal Gross Domestic Product using the GDP price deflator method. This method uses a specific formula.
Nominal GDP = Real GDP x GDP Price DeflatorEconomists compare GDP from different years by using the prices of goods from a base year as a reference. The change in these prices is known as the GDP price deflator.
Conclusion
Nominal gross domestic product (GDP) is helpful when comparing GDP to other factors that are also not adjusted for inflation. For instance, when looking at a country’s debt in relation to its GDP, nominal GDP is used since debt is measured in current dollars. However, many economists prefer real GDP because it takes inflation into account.