What is the difference between nominal GDP and real GDP?

Some people may assume that a nominal GDP and real GDP are the same as each other but they have some differences. The nominal GDP will refer to the output that has been produced in a year. The value will depend on the current market price. The real GDP will refer to the total sum of the economic output that has been produced in a year.

The value of this will be pre-determined depending on the market price. Nominal GDP is not affected by inflation but real GDP would need to take inflation into account. The GDP will be called inflation-adjusted GDP after inflation has been considered.

Nominal GDP is a simple total of all goods and services produced in an economy in current dollar terms (i.e. at current prices). Real GDP is a total of all goods and services produced as measured at past prices (prices as they were in the base year.)

If you track nominal GDP, you might think that an economy is growing, but since prices are generally rising in an economy, you won't know if the nominal gdp increase is caused by increased production, or simply because prices increased. Real GDP holds prices constant, and therefore any increase you see will be from increased production only.