Nominal Gross Domestic Product

Nominal Gross Domestic Product is GDP evaluated at present market prices. GDP is the financial equivalent of all the complete products and services generated within a nation’s in a definite time. Nominal varies from real GDP, and it incorporates changes in cost prices due to an increase in the complete cost price. Generally, economists utilize a gross domestic factor to change nominal GDP to real GDP also known as current dollar GDP or chained dollar GDP.

The aggregate financial business value manufactured within a country is known as Nominal GDP .Nominal GDP, is simply the value of GDP at the
current prevailing prices. For example, suppose a country only produces bread.
In the year 2019 it had produced 100 units of bread, price was Rs 10 per bread.

GDP at current price was Rs 1,000. In 2020 the same country produced 110
units of bread at price Rs 15 per bread. Therefore nominal GDP in 2020 was Rs 1,650 (=110 × Rs 15). Real GDP in 2020 calculated at the price of the year 2019 (2019 will be called the base year) will be 110 × Rs 10 = Rs 1,100.

Nominal GDP, also known as the nominal gross domestic product is the value of all the final goods and services at current market prices, or in other words, it is GDP calculated at the current market prices.

Nominal GDP takes into account these factors such as inflation, price changes, changing interest rates and money supply at the time of determining GDP.

The mathematical formula for calculating nominal GDP is

GDP = C + I + G + (X – M)

Where,

C = Consumption

I = Investment

G = Government spending

X = Exports

M = Imports

Impact of Inflation on Nominal GDP

1. As the nominal GDP is calculated at current market prices, the growth in the nominal GDP will indicate that there is a price rise instead of an increase in the amount of goods produced.
2. The rise in inflation will make the nominal GDP to be greater.

Nominal GDP plays a significant role in calculating the GDP deflator as well as determining the real GDP.

To calculate nominal GDP, the value of goods are taken at current year prices, and this is achieved by using the consumer price index of the basket of goods.