Real vs. Nominal GDP

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nominal GDP

the market value of the final production of goods and services within a country in a given period using that year's prices (also called "current prices")

current prices

the prices at which goods are sold in a nation in a particular year; current prices are used when calculating nominal GDP.

constant prices

the prices from a base year that are used to calculate real GDP in other years; this allows for a more accurate measure of how a country's actual output changes over time, because using constant prices cancels out any changes in the price level between years.

GDP deflator

a price index used to adjust nominal GDP to find real GDP; the GDP deflator measures the average prices of all finished goods and services produced within a nation's borders over time.

real GDP

nominal GDP adjusted for changes in the price level, using prices from a base year (constant prices) instead of "current prices" used in nominal GDP; real GDP adjusts the level of output for any price changes that may have occurred over time

base year

the year used for comparison in the determination of price changes using the GDP deflator price index; the deflator in a base year is always equal to =100=100equals, 100.


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