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What is the difference between real and nominal GNP?

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Quick Answer

The difference between real and nominal GNP, or gross national product, is that the nominal GNP is calculated at the current price levels of the economy, and the real GNP is calculated relative to a set base year. Nominal GNP is typically used to compare current economies at current price levels, and real GNP can be used to evaluate a single economy's history.

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Full Answer

In economics, real and nominal are always used to refer to the difference between something at its current price, or its nominal price, and something at its price relative to a base year, or real price. This can be used to evaluate both currency trends, GDP, GNP and interest rates.

GNP is a measure of the economic output of an economy. Real and nominal GNP are both used for comparisons between different economies, but they approach the comparison in different ways. When looking at trends using the real GNP, you can examine the measure of output without needing to worry about the influence of prices.

If prices rise, then the nominal GNP will look like it increases even if it doesn't actually increase. This is because the total output in price will increase. Real GNP, therefore, can help adjust for inflation and rising costs while still providing an accurate measure of the total economic output. Real GNP can be used for measuring economic output in terms of goods and services, while nominal GNP can be used to measure output in terms of money value.

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