# Nominal Gross Domestic Product - Explained

What is Nominal GDP?

# What is Nominal Gross Domestic Product?

Nominal gross domestic product otherwise called nominal GDP refers to the GDP of a country calculated at the current market prices. This means that all goods and services produced in a country at a particular time are evaluated at their current market prices. Measuring a country's GDP at the current market prices entails factoring all the changes in market prices, as well as other market indices. The real GDP of a country is not the same as its nominal GDP. The nominal GDP is otherwise canned the current dollar GDP.

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# How to Calculate Nominal GDP?

In some definitions, the nominal gross domestic product of a country is its real GDP when changes in prices due to inflation and other market factors are accounted for. The Nominal GDP is accounted for as the market value of goods and services produced in an economy at a specific time, unadjusted for inflation. There are three approaches to measure nominal GDP, these are;

• The expenditure approach: This approach entails adding up the sales or purchases of finished goods and services for a particular year to measure the nominal GDP.
• The income approach: The addition of all income earned by companies and households (received as wages, profit, rent and interest as the case may be) for a single year.
• The production approach: This approach entails calculating all productions for a single year and deducting actual sales from output.

# Effects of Inflation on Nominal GDP

There are some significant impacts that inflation has on the nominal GDP of a country. Inflation affects the economy negatively in that the prices of finished goods and services increase making it difficult for consumers to purchase the finished products. Consumers and investors experience a decline in purchasing power as a result of inflationary outcomes. During inflation, consumers are required to spend more money for the purchase of goods and services as against the amount the spend before inflation occur. Inflation results in an overall increase in the price of goods and services. If prices of goods rise by 5% and the income an individual earns also rise by 5%, there is no change in the real income of the individual.