Why is real GDP a more accurate measure of an economy's production than nominal GDP? Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not. Real GDP includes the value of exports, but nominal GDP does not. Real GDP is not influenced by price changes, but nominal GDP is.

Question

Antwan Munoz

Business

8 March, 14:52

Why is real GDP a more accurate measure of an economy's production than nominal GDP? Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not. Real GDP includes the value of exports, but nominal GDP does not. Real GDP is not influenced by price changes, but nominal GDP is.

+5

Answers (1)

Know the Answer?

Dalton Carey · Answer 1

Real GDP is not influenced by price changes, but nominal GDP is.

Explanation:

Real gross domestic product (Real GDP) is a measure of gross domestic product "in volume", that is, measured at constant prices. Changes in GDP linked to price variations (inflation or fall in prices) are thus neutralized, which allows a measure of economic growth.

Real GDP is only used in practice to measure GDP growth from year to year, with nominal GDP remaining the benchmark measure for long-term data.