Converting Nominal to Real GDP
How to Convert Nominal to Real GDP?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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How to Convert Nominal to Real GDP?
To convert nominal to real GDP, we generally use some form of index number. This puts the current value into real terms - meaning that it subtracts out inflation that has raised the costs of items calculated as part of GDP. This metric demonstrates the real growth or decrease in GDP from a previous period without distorting the comparison with inflated numbers/prices.
An indexed number provides an approximation of price change for a common basket of goods between two time period. The most well-known index for converting nominal to real GDP is the GDP Deflator.
GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100
The GDP deflator is a price index measuring the average price of all goods and services included in the calculation of an economy's GDP.
Using the GDP deflator, simply divide the historical price by the Deflator index number.
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