Real GDP, Nominal GDP

& GDP per capita

By- Ankit Pokhrel
1 GDP: Gross Domestic Product
GDP is the dollar value of all FINAL goods and services produced within a
country’s borders in a given year.

◦ The best known and most widely used measure of aggregate economic activity.

◦ Total income of a nation

◦ Measure of nation’s economic well-being

◦ Measure of a nation’s economic growth from one period to the next

 Calculation of GDP

GDP can be calculated three ways:

◦ Product Approach: Add up the value added of all producers

◦ Expenditure Approach: Add up all spending on domestically-

produced final goods and services.

◦ Income Approach: Add up all income paid to factors of production

Expenditures Approach

Four components of GDP:

◦ Consumer Spending © - Consumption by households

◦ Investments (I) - Investment by businesses and households

◦ Government Spending (G) – Government expenditures by local, state, and

federal government

◦ Net Exports (NX) - Exports (X) – Imports (M)

GDP = C + I + G + NX
When GDP is computed in the current year’s prices, rising
prices (inflation) can make it difficult to determine if a
change in GDP from one year to the next is due to the
country’s production of more goods and services or to
increases in the price level.
 Nominal GDP vs Real GDP

Nominal GDP Real GDP

GDP measured by calculating GDP in current GDP measured by calculating GDP with base year’s
year’s prices. price.

It does not account for inflation from year to year. Real GDP adjusts for inflation.

If nominal GDP rises from one year to the next,

one of two things must be true: The economy is An increase in real GDP is an increase in economic
producing a larger output of goods and services, growth.
and/or goods and services are being sold at higher
prices.
Nominal GDP vs Real GDP
What’s not included in the GDP?

◦ Intermediate goods
◦ Second hand/Used goods
◦ Underground production (black market)
◦ Bonds or Stocks
◦ Household production
◦ Transfer payments
2 GDP per capita

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GDP per capita

◦ Real GDP per capita is real GDP divided by the total

population.

◦ It identifies on average how many products each person

makes.

◦ GDP per capita is a global measure for gauging the

prosperity of nations and is used by economists, along with
GDP, to analyze the prosperity of a country based on its
economic growth.

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Thanks!