Nominal and Real GDP, Macroeconomics Video Lecture | Macro Economics - B Com

[Music]
hello and welcome to Ethne investment
Academy in our previous video we saw
what is GDP and how it is calculated the
calculated GDP there was in nominal
terms but now question arises what is
difference between nominal and real GDP
let us understand with an hypothetical
example let us assume country a which
only produces apples now the GDP of the
country would be the quantity of apples
multiplied by the price of apple now let
us assume country a produces hundred
apples in year one selling price of one
Apple being rupees ten as the country
produces only apples and no other
product the GDP of the country would be
rupees 1000 in year two suppose country
a now produces one hundred and ten
apples a selling price of Apple has now
increased to rupees twelve
1,320 rupees now what does this 1320
indicates it indicates the nominal GDP
of country a increase in GDP from
thousand to 1320 is not just because of
the increase in quantity from one
hundred two hundred and ten but also
because of the increase in price from
ten to twelve rupees per apple so if you
want to know the real growth of
country's economy then we must calculate
the GDP of country a of year two in
price of year one so now the price will
be ten and the quantity will be hundred
and ten
so the GDP of year two the real GDP of
year two will be eleven hundred rupees
so difference between nominal and real
GDP can be clearly seen
and we can say the real growth in GDP is
10 percent that is from thousand rupees
to eleven hundred rupees
now taking real GDP values of India from
2015 to 2016 the nominal GDP increased
from 136 point seven five trillion to
one fifty two point five one trillion in
Indian rupees term that is an increase
of around 11.5 percent these values in
u.s. dollars are two point one one two
trillion and two point two six four
trillion dollars when we refer to a
country's GDP at current price it is
mostly this nominal GDP in u.s. dollars
which is referred so if someone asks you
what is India's GDP in 2016 then it is
two point two six four trillion dollars
but this eleven point five percent is
not referred as GDP growth as it
includes inflation component as well
we have not mentioned the growth in
terms of US dollars here as these two
values cannot be compared due to change
in exchange rates in separate ears as
there is no relation between the nominal
GDP of two years in other currency terms
therefore whenever growth of GDP is
mentioned it is mentioned by comparing
real GDP of two years because to
calculate real GDP a base year is chosen
and then value from that year forward
will be considered to determine the
actual growth in GDP after adjusting for
inflation real GDP is always calculated
and referred to a constant US dollar or
rupee price of a particular year india's
real GDP increase from 2.30 one trillion
dollars to two point four six five
trillion dollars at 2010 constant dollar
price that is an increase of around
seven point one percent so this figure
of seven point one percent is always
referred as GDP growth for developing
countries with is high inflation real
GDP value is always lower than nominal
value because it is adjusted for
inflation but here in dollar terms this
value is coming higher this is because
exchange rate difference between 2010 on
which real GDP is calculated and 2015-16
on which nominal GDP is calculated was
very high so that is all we have on this
topic if you have any question please do
write in the comment section below and
have a great time ahead