Nominal GDP and Real GDP and GDP Deflator

What is Nominal GDP and Real GDP ? and What is GDP Deflator? 

  • Nominal GDP refers to the current year production of final goods and services valued at current year prices. 
  • Real GDP refers to the current year production of goods and service valued at base year prices. Base year prices are constant prices. 
  • Currently, the base year for GDP calculation is 2011-12. 

What is GDP Deflator? 

The ratio of nominal to real GDP is a well-known index of prices. This is called GDP deflator.  

GDP Deflator = Nominal GDP/ Real GDP 

 The GDP deflator is, therefore, a measure of inflation. If GDP deflator is 2, then it means prices are doubled as compared to base year. The GDP deflator is considered the better measure of price behavior because it covers all goods and services produced in the country. 

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