Distinguish between Real Gross Domestic Product and Nominal Gross Domestic Product. Which of these is a better index of welfare of the people and why?

Basis Rel Gross Domestic Product Nominal Gross Domestic Product
Meaning Real GDP refers to the value of economic output produced in a given period which is adjusted according to the changes in the general price level. The aggregate market value of the economic output produced in a year within the boundaries of the country is known as Nominal GDP.
Based on  It is based on prices of base year or constant prices. Based on Current year Prices.
Change Real GDP  is affected by change in physical output only. It can increase even without any increase in physical output as it is affected by changes in prices also.
Value of GDP It is generally lower since market price of base year is taken into consideration. It is higher as current market changes are taken into consideration.
Economic Growth Economic growth can be analysed easily. Economic growth cannot be analysed easily.
Complexity Real GDP is bit complex to ascertain. Nominal GDP is easy to calculate and ascertain.

Real GDP is a better indicator of economic growth because it can be compared with base year GDP. While nominal GDP cannot be compared to any previous year's GDP. Also when Real GDP rises, flow of goods and services tends to rise, other factors remaining constant. This means greater availability of goods per person, implying higher level of welfare. 

  • 0
What are you looking for?