Nominal GDP
BeginnerNominal GDP is the value of all goods and services produced in an economy, measured at the prices of the period in which they were produced, without adjusting for inflation.
Nominal GDP reflects both the quantity of goods and services produced and the prices at which they are sold. It can rise because the economy is producing more, because prices are rising, or both.
For example, if an economy produces exactly the same output as last year but all prices are 5% higher, its nominal GDP will rise by 5% even though nothing more was produced.
Nominal GDP is useful for measures that are themselves in current money. Government debt, budget deficits and tax revenues are usually compared with nominal GDP, because they are also measured at current prices. This is why the debt-to-GDP ratio uses nominal GDP.
To understand how much an economy has truly grown, economists use real GDP, which removes the effect of price changes. The ratio between nominal and real GDP gives a broad measure of price changes across the whole economy, called the GDP deflator.
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