Question

Distinguish between real gross domestic product (GDP) and nominal gross domestic product (GDP).

Using a suitable numerical example, distinguish between real gross domestic product (GDP) and nominal gross domestic product (GDP).

Distinguish between GDP at current prices and GDP at constant prices.

Answer 1

Sr. No.	Basis of Difference	Nominal GDP	Real GDP
1.	Meaning	It is the market value of final goods and services produced within the domestic boundary of a country in an accounting year, estimated at current year prices.	It is market value of final goods and services produced within the domestic boundary of a country in an accounting year, estimated at base year prices.
2.	Also known as	It is also known as GDP at current prices.	It is also known as GDP at constant prices.
3.	Examples	Nominal GDP = Current year quantity × Current year prices	Real GDP = Current year quantity × Base year prices
4.	Indicator of economic growth	It is not a true indicator of the economic growth of a country.	It is a true indicator of the economic growth of a country.

Answer 2

• Gross Domestic Product (GDP) at current prices, also known as nominal GDP, refers to the monetary value of all final goods and services produced within a country’s domestic territory in a given year, calculated using the market prices that prevail during that same year. In other words, both the output and prices used for this calculation belong to the same year.
• In contrast, GDP at constant prices, or real GDP, represents the value of final goods and services produced in a year but evaluated using the market prices from a fixed base year. This means that the prices remain constant over time, allowing only the quantities to vary.
• While nominal GDP may increase or decrease due to changes in either the quantities produced or the prices of goods and services, real GDP changes only in response to variations in the actual physical output, as prices remain fixed at base-year levels.