What are the differences between real GDP and nominal GDP?

1 Answer
Jan 28, 2015

Real gross domestic product (GDP) is adjusted for inflation whereas nominal GDP is not.

When comparing nominal GDP's between two time periods, their difference may not be an effective metric because of price discrepancies. Goods in one era may cost a lot more or less depending on the inflation rate between the two periods. Thus, real GDP is more useful in comparing GDP's between two time periods because it ignores the effect of increasing or decreasing prices.