Nominal GDP and real GDP
In economics, GDP is divided into nominal GDP and real GDP. The so-called nominal GDP refers to GDP calculated from the current price level, while the real GDP is GDP calculated from the previous price level. The difference between these two GDPs is the different price levels used.
GDP deflating index
After understanding nominal GDP and real GDP, we can lead to the statistical indicator , which is called the GDP deflating index.
GDP deflating index: is calculated by multiplying the ratio of nominal GDP to real GDP by 100.
GDP deflating index = Nominal GDP/Real GDP*100
Assuming that we use the price level in 2015 as the benchmark, since the nominal GDP in 2015 must be equal to the real GDP, then the GDP deflating index in 2015 is 100. Assuming that price levels rise in 2016 but output remains unchanged, nominal GDP increases while real GDP remains unchanged, so the GDP deflating index also rises. Having said so much, what is the use of GDP deflating index? The answer is that it can be used to measure inflation . The calculation is as follows:
Use the gdp deflating index to describe inflation
If the price level in 2016 remains unchanged relative to 2015, and the GDP deflating index in 2016 is 110, then we can calculate that the inflation in 2016 compared to 2015 is (110-100)/100X100%=10%. The
GDP deflating index is named because it can remove inflation from nominal GDP, which means "decreasing" the rise in nominal GDP due to rising prices.
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