Can you give an example of the difference between nominal GDP and - ProProfs Discuss
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Can you give an example of the difference between nominal GDP and real GDP?

Asked by Garfield, Last updated: Sep 18, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Here is an example of nominal vs. real calculations. Year one will be the base year. In year one, the economy produces and sells 100 units of apples at $1.5 per unit. The economy produces 200 units of bread and sells them at a price of $1 per unit. Nominal GDP and real GDP will be the same in the base year. in this case, the nominal and real gdp would be $350: ($1.5 x 100) + ($1 x 200) = $350 in year two, the price of apples increased to $1.60 per unit and the economy produced and sold 120 units.

The price of bread increased to $1.25 per unit and the economy sold and produced 225 units. Nominal gdp = ($1.60 x 120) + ($1.25 x 225) = $473.25 real gdp = ($1.50 x 120) + ($1 x 225) = $405 things to note: 1. To calculate nominal gdp, you multiply the price of goods in the current year by the amount of goods sold in the current year for each type of product produced and sold. 2. You can see from the above formulas that calculating real gdp required using the base years prices and the current years output of units sold. This effectively eliminates the influence that price would have on your measurement. 3. How much influence did price have on the measurements? Consider that nominal gdp increased from $350 to $473.25. This is a 35% increase in gdp. The problem is, you don't know how much of that increase was a result of the economy increasing production and how much was a result of simple price increases. But when you compare real gdp figures, you find that production increased by approximately 15.7% (an increase from $350 to $405 is approximately a 15.7% gain). After factoring out price as an influence, you find out how much production really increased in the economy.

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