Different betwen GDP nominal and Real
The value of final goods and services measured at current prices is
called nominal GDP. It can change over time, either because there is a
change in the amount (real value) of goods and services or a change in
the prices of those goods and services.
Hence, nominal GDP Y = P * y, where P is the price level and y is real
outputand remember we use output and GDP interchangeably.
Real GDP or, y = Y : P is the value of goods and services measured using a constant set of prices.
This distinction between real and nominal can also be applied to other
monetary values, like wages. Nominal (or money) wages can be denoted by W
and decomposed into a real value (w) and a price variable (P).
Hence, W
= nominal wage = P w
\t w = real wage = w/P
This conversion from nominal to real units allows us to eliminate the
problems created by having a measuring stick (dollar value) that
essentially changes length over time, as the price level changes.
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