Nominal GDP VS. Real GDP

• Nominal GDP: is the value of output produced in current prizes 
• It can increase from year to year if output or price increase 
• PxQ
• Real GDP: Value of output produced in constant or base year prices
• It is adjusted for inflation
• Only increases from year to year if the output increases.
• Price Index: 
• price of market basket goods in current  X 100
• price of market basket goods in base 
• GDP Deflator: is always equal to 100/ for years after base year 
• The deflator is greater than 100 for years after the base years
• The deflator is less than 100 for years before the base year