what is nominal gdp 
as noted above governments rely on both real and nominal gdp to get an idea of where the economy is heading while real gdp takes inflation or deflation into account nominal gdp is a macroeconomic assessment of the value of goods and services using current prices in its measure as such nominal gdp is also referred to as the current dollar gdp 5because nominal gdp measures how well the economy is doing without factoring in price changes due to inflation or deflation it may actually inflate growth because all of the goods and services that are used to determine nominal gdp are valued at prices in the current year the easiest way to calculate nominal gdp is by multiplying real gdp by the gdp deflator nominal gdp real gdp gdp deflator begin aligned text nominal gdp text real gdp times text gdp deflator end aligned nominal gdp real gdp gdp deflator you can also calculate it using the expenditure method nominal gdp c i g x m where c consumer spending i business investment g government spending x m total net exports begin aligned text nominal gdp text c text i text g text x text m textbf where text c text consumer spending text i text business investment text g text government spending text x text m text total net exports end aligned nominal gdp c i g x m where c consumer spendingi business investmentg government spendingx m total net exports although u s real gdp increased by 1 6 in the first quarter of 2024 on an annualized basis nominal gdp which is called current dollar gdp by the bea increased by 4 8 3real gdp vs nominal gdpbecause gdp is one of the most important metrics for evaluating the economic activity stability and growth of goods and services in an economy it is usually reviewed from two angles real and nominal the table below highlights some of the main differences between the two types of gdp used by economists businesses investors and government leaders economists use the bea s real gdp headline data for macroeconomic analysis and central bank planning as the table above indicates the main difference between nominal gdp and real gdp is the taking of inflation into account since nominal gdp is calculated using current prices it does not require any adjustments for inflation this makes comparisons from quarter to quarter and year to year much simpler to calculate and analyze keep in mind though that any comparisons are less relevant as such real gdp provides a better basis for judging long term national economic performance than nominal gdp using a gdp price deflator real gdp reflects gdp on a per quantity basis without real gdp it would be difficult to identify just from examining nominal gdp whether production is actually expanding or if it s just a factor of rising per unit prices in the economy a positive difference in nominal minus real gdp signifies inflation and a negative difference signifies deflation in other words inflation occurs when nominal gdp is higher than real gdp deflation happens when real gdp is higher than nominal gdp the gdp price deflator is considered to be a more appropriate inflation measure for measuring economic growth than the consumer price index cpi because it isn t based on a fixed basket of goods example of real gdp vs nominal gdpreal gdp will be lower than nominal gdp during inflationary periods and is higher when the economy experiences deflation let s demonstrate this using the example of a hypothetical country suppose it had a nominal gdp of 100 billion in 2000 which grew by 50 to 150 billion by 2020 over the same period of time inflation reduced the relative purchasing power of the dollar by 50 looking at just the nominal gdp the economy appears to be performing very well whereas the real gdp expressed in 2000 dollars would actually indicate a reading of 75 billion revealing in fact a net overall decline in economic growth had occurred it is due to this greater accuracy that real gdp is favored by economists as a method of measuring economic performance 