Nominal GDP represents the output of the country at current prices, and therefore is useless when comparing output for different periods. For example, knowing that a country’s annual nominal GDP was $1 billion in 1940 but $200 billion now does not tell you much about the actual relative output between those two periods. You would have to convert the figures to real GDP to see how they compare. [2] X Research source
Consumption is the largest and most stable part of nominal GDP. However, imported goods are not included, as they are part of the final category, net exports.
Stocks and bonds are not included here since they do not add to any actual output.
Add up the four categories to arrive at nominal GDP for the time period.
Enter your own data to calculate nominal GDP growth. For example, if NGDP were $200 billion one period and $210 the next, your equation would be: NGDP Growth=$210B−$200B$200B{\displaystyle {\text{NGDP Growth}}={\frac {$210B-$200B}{$200B}}}
Using the previous example, the equation would first solve to NGDP Growth=$10B$200B{\displaystyle {\text{NGDP Growth}}={\frac {$10B}{$200B}}}. Then, dividing gives NGDP Growth=0. 05{\displaystyle {\text{NGDP Growth}}=0. 05}. Finally, multiply by 100 to get NGDP Growth=5%{\displaystyle {\text{NGDP Growth}}=5%}. Your nominal GDP growth rate between the two periods is 5 percent.
For example, imagine that a record of nominal GDP growth shows a value of $200 billion one year and $280 billion five years later. The cumulative growth can be calculated as 40 percent using the above method.
The formula, specific to calculating NGDP, can be expressed as NGDP Growth=(NGDPxNGDPx−1)1t−1{\displaystyle {\text{NGDP Growth}}=({\frac {NGDP_{x}}{NGDP_{x-1}}})^{\frac {1}{t}}-1}. [11] X Research source The variable t{\displaystyle t} represents the number of time periods. So, continuing with the cumulative growth example, we would have NGDP Growth=($280B$200)15−1{\displaystyle {\text{NGDP Growth}}=({\frac {$280B}{$200}})^{\frac {1}{5}}-1}. This would then simplify to NGDP Growth=(1. 4)15−1{\displaystyle {\text{NGDP Growth}}=(1. 4)^{\frac {1}{5}}-1}. Then, the exponent can be solved by raising 1. 4 to the power of 1 divided by 5, or 0. 2. This is done on a calculator using the exponent button or can be entered into a search engine as “1. 4^0. 2”. The result is 1. 0696 when rounded to four decimal places. This leaves the equation as NGDP Growth=1. 0696−1{\displaystyle {\text{NGDP Growth}}=1. 0696-1}. So, the result is NGDP Growth=0. 0696{\displaystyle {\text{NGDP Growth}}=0. 0696}. Multiplying by 100, we get the average growth rate over the time period, which is 6. 96 percent.
The GDP deflator to convert nominal GDP for the current year to real GDP would then be 105÷120{\displaystyle 105\div 120}, or 0. 875. So, if the nominal GDP for that year were $100 billion, real GDP would be 0. 875×$100billion{\displaystyle 0. 875\times $100billion}, or $87. 5 billion.
