Suppose the nominal GDP for year A is $500,000 and the nominal GDP for the same economy in year B is $400,000. The real GDP for year A is $500,000, and the real GDP for year B is $500,000. The same amount of goods and services were produced each year. What happened to the prices of goods and services between year A and year B? Explain

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2 February, 21:46

Suppose the nominal GDP for year A is $500,000 and the nominal GDP for the same economy in year B is $400,000. The real GDP for year A is $500,000, and the real GDP for year B is $500,000. The same amount of goods and services were produced each year. What happened to the prices of goods and services between year A and year B? Explain

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Kaylynn Ellison · Answer 1

It should be understood that the nominal GDP is the total value of all goods and services produced in a given time period, usually quarterly or annually with inflation, while that of Real GDP is the inflation-corrected value of goods.

This means that the inflation during year B is higher than that of year A and that's why the nominal GDP of year B is a bit lower than that of year A.