Question

if nominal GDP increases while real GDP declines in a given period , what does this say about economic growth and inflation ? explain briefly

Answer 1

Nominal GDP is the GDP in money terms. It is the market value of goods and services estimated at the price prevailing in the year of manufacturing. It is the GDP unadjusted for inflation. The nominal GDP may increase with inflation. The total value of output may increase without corresponding increase in quantity when there is inflation. It is not the true index of economic growth.

Real GDP on the other hand is the real indicator of economic growth. Real GDP is the money value of goods and services estimated by using some base year price. It is the GDP after adjusting the inflation. An increase in real GDP shows that the economy has produced more output and achieved economic growth. A fall in real GDP means the economy has produced less output and achieved less growth.

When estimating GDP growth rate, if the nominal GDP has increased, while real GDP has declined, the situation shows that the inflation has increased and the growth rate has declined.