Nominal GDP

Nominal GDP is the gross domestic income at current prices. Current prices refer to the prices prevailing in the market during a particular period for which domestic income estimates are made. Gross domestic product at current prices is the money value of all final goods and services produced during a given year and measured according to the prices prevailing in the same year. For example, if we want to calculate the gross domestic income of India for 2011-12, the goods and services produced in 2011-12 must be measured according to the prevailing prices of 2011-12. If G1 is the goods produced 2011-12 and P1 is the price of output G1 in the same year, then gross domestic income at current prices would be P1G1. This is called nominal GDP. However, nominal GDP does not truly indicate the real performance of the economy over a period of time. This is due to the fact that price level changes. While nominal GDP. However, nominal GDP does not truly indicate the real performance of the economy over a period of time. This is due to the fact that price level changes. While nominal GDPP may be increasing due to the rise in price level, the quantity of goods and services produced may remain constant. Hence to get the true picture of GDP, i.e. to what extent the amount of final goods and services produced increased, we have to eliminate the effect of change in prices on nominal value of GDP in the current year.