Economics
Philippines Economics

What is nominal GNP and real GNP?

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2010-11-28 00:40:34

The nominal GNP is the value of all the production valued at

this year's prices. Real GNP is valued at prices of a base year.

Thus, if an economy produces in year 1 2 oranges and 3 apples, at

prices 5 and 6 respectively and in year 2, 4 oranges and 6 apples,

at prices 9 and 8, then:

"bnominal_GDP_year_1=2*5+3*6=28/b" id=

"bnominal_GDP_year_1=2*5+3*6=28/b">nominal GDP year

1=2*5+3*6=28

nominal GDP year 2= 4*9+6*8=84

Notice that you can not compare production between two years

because prices increased. It is not correct to state that

production multiply by 3. So you should compute real GNP at prices

of year 1

Real GDP year 1 (at prices of year 1) = 28 (same as

before)

Real GDP year 2 (at prices of year 1) = 4*5+6*6=56


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