Nominal GDP has increased from 14 in 2007 to 145 in 2008 and

Nominal GDP has increased from 14 in 2007 to 14.5 in 2008 and Real GDP from 13 in 2007 to 13.2 in 2008. What does the difference in Nominal and Real GDP growth rate here imply?

Solution

That would be the estimate for inflation.

Nominal GDP is inclusive of price changes.

Real GDP is the value of goods and services only.

So, if we take the difference of their growth rates then it will be the inflation.

REAL GDP = NOMINAL GDP / PRICE LEVEL

This will reflect the change in price level.