Nominal GDP measures a country’s output at current prices, so it rises when prices rise. Real GDP strips out inflation to show the true change in the quantity of goods and services produced. Real GDP is the better measure of economic growth; the GDP deflator converts one to the other.
Nominal vs real GDP: what is the difference?
Both measure gross domestic product, the total value of everything an economy produces — but they treat prices differently. Nominal GDP uses the prices of the moment. Real GDP uses constant prices from a fixed base year, so it isolates changes in actual output (US Bureau of Economic Analysis).
| Nominal GDP | Real GDP | |
|---|---|---|
| Prices used | Current prices | Constant (base-year) prices |
| Includes inflation? | Yes | No — inflation removed |
| Best for | Size of the economy today | Measuring real growth over time |
Because nominal GDP rises with inflation, it can suggest an economy is growing when it is only prices that have gone up. Real GDP answers the more useful question: is the country actually producing more?
An example, and the GDP deflator
The gap is easy to see in real data. In 2024 the US economy’s real GDP grew 2.8%, while the prices of what it produced rose about 2.4% (US Bureau of Economic Analysis). Add the two together and nominal GDP grew far faster than real output — the extra came from higher prices, not more goods. That year, US nominal GDP reached about $29.2 trillion.
The tool that separates the two is the GDP deflator, a price index covering everything an economy produces. Divide nominal GDP by the deflator and you get real GDP (IMF). Unlike the consumer price index, the deflator includes goods bought by businesses and governments too.
Key takeaways
- Nominal GDP uses current prices; real GDP uses constant prices with inflation removed.
- Real GDP is the standard measure of economic growth.
- In 2024, US real GDP grew 2.8% while prices rose about 2.4% (BEA).
- The GDP deflator converts nominal GDP into real GDP.
Which one should you use?
Use nominal GDP to compare the size of economies at a point in time, or to work with figures like debt-to-GDP that are measured in current dollars. Use real GDP to judge whether an economy is genuinely expanding or shrinking. When the news reports that an economy “grew” by a certain percentage, it almost always means real GDP.
Frequently asked questions
Which is bigger, nominal or real GDP?
When there is inflation, nominal GDP is bigger, because it includes rising prices. Real GDP is lower because it strips inflation out. In rare periods of falling prices (deflation), real GDP can exceed nominal GDP.
Why use real GDP to measure growth?
Because it shows whether a country actually produced more, rather than just charging higher prices. Nominal GDP can rise purely because of inflation, which would overstate real economic progress.
What is the GDP deflator?
It is a broad price index for everything an economy produces, used to convert nominal GDP into real GDP. It is wider than the consumer price index because it also covers business and government purchases.
Sources
- US Bureau of Economic Analysis, GDP 4th Quarter and Year 2024 — retrieved 2026-07-05 — bea.gov
- IMF, Gross Domestic Product: An Economy’s All — retrieved 2026-07-05 — imf.org
- Encyclopaedia Britannica, Gross domestic product — retrieved 2026-07-05 — britannica.com
Last updated: July 4, 2026
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