Nominal Gdp

Published Jan 8, 2023

Definition of Nominal GDP

Nominal GDP is the total value of all goods and services produced in an economy in a given year, measured at current market prices. That means it is the sum of all the money spent on goods and services in a given year without taking into account the effects of inflation. Thus nominal GDP is the counterpart to real GDP, which takes inflation into account.

Example

To illustrate this, let’s look at the economy of a small imaginary country. In a given year, the country produces 100 tons of wheat, 50 tons of corn, and 20 cars. The market price for wheat is USD 200 per ton, the market price for corn is USD 100 per ton, and the market price for cars is USD 20,000 each. That means the total value of all goods and services produced in the country that year is USD 425,000 (i.e., 100*200 + 50*100 + 20*20,000). This is the nominal GDP of the country.

Why Nominal GDP Matters

Nominal GDP is an important economic indicator because it provides an estimate of the total economic output of an economy in a given year. It is used to compare the economic performance of different countries and to measure the economic growth of a country over time.

However, it is important to note that nominal GDP does not take into account the effects of inflation. Therefore, it is often used in combination with other economic indicators, such as real GDP, to get a more accurate picture of an economy’s performance.