Nominal GDP, Real GDP, and Price Level Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation . Inflation is defined as a rise in the overall price level, and deflation is defined as a fall in the overall price level. In order to abstract from changes in the overall price level, another measure of GDP called real GDP is often used. Real GDP is GDP evaluated at the market prices of some base year . For example, if 1990 were chosen as the base year , then real GDP for 1995 is calculated by taking the quantities of all goods and services purchased in 1995 and multiplying them by their 1990 prices. GDP deflator . Using the statistics on real GDP and nominal GDP, one can calculate an implicit index of the price level
This is the end of the preview. Sign up
access the rest of the document.