How to Compute Nominal GDP

The GDP provides a "report card" for a country's economy.

There are numerous ways economists create a baseline "report card" for how a country is performing. One of these, the Gross Domestic Product (GDP) measures the worth, in local currency, of all the goods and services produced by a country within a period of time (a fiscal year or quarter, for example). GNP calculations take into account consumer and government spending, investment and net exports. There are two ways to measure GDP: real GDP is the sum of all these goods and services adjusted at a constant price, usually taken as averages of previous years, while nominal GDP measures the sum of goods and services taken at current prices.

Instructions

1. Calculate GDP by adding up all the expenditures local to a country, as in:
   GDP = C + I + G + NX
   Where C is equal to the sum of consumer expenditures on durable and nondurable goods and services (products, food, health care and so forth); I is equal to the sum of expenditures on investments (such as housing, retail inventory and structures); G is equal to the sum of all government spending on goods and services (military equipment and official salaries, for instance); and NX is equal to the difference between products that are imported and products that are exported.

2. Calculate the nominal GDP of a country by plugging in the prices and quantity of the specific year, or period of time. For example, to determine a country's nominal GDP for the year 2009, you would sum the value of all the expenditures (C + I + G + NX) using the year 2009 prices of C; I; G: and NX.

3. Calculate the real GDP to compare against the nominal GDP to determine the rise of inflation. To calculate real GDP of a country, choose a base year to calculate. For example, to determine a country's real GDP for the year 2010 using a base year as 2000, you would sum the value of all the expenditures (C + I + G + NX) using the year 2000 prices of C; I; G: and NX. In other words, you calculate using the GDP equation in Step 1, plugging in a base year's prices but the current year's quantities.

4. Compare nominal and real GDP values to see how prices affect GDP, measuring the rise or fall of inflation by comparing the two figures to determine the GDP Deflator (or the ratio of nominal GDP to real GDP for a given year):
   GDP Deflator = (Nominal GDP / Real GDP) x 100

References

• State University of New York at Oswego: Principles of Macroeconomics Lecture
• SparkNotes: Measuring the Economy 1
• Lewis and Clark: Measuring a Nation's Income