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    Real GDP and nominal GDP differences

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    What is the difference between real GDP and nominal GDP? Which is the better measure of economic well-being, and why?

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    Let me make this as simple as possible.

    GDP stands for Gross Domestic Product, and does not count overseas investments (that would be Gross National Product).

    Nominal versus Real:

    Nominal GDP uses present-day prices. If inflation is pushing prices up, then this is counted in the nominal figure. But if the dollar is inflated in value, the nominal GDP would be a false reading. The dollar has lost value.

    Real GDP tries to compensate for nominal 'false readings' by using a base year. That means it will use prices that were in effect in 2000 or something to have a measure from which to compare economic development in 2012. ...

    Solution Summary

    The expert examines real GDP and nominal GDP differences.