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Real versus nominal GDP

Nominal GDP measures output at current prices; real GDP strips out price changes using chained weights so that growth reflects volume rather than inflation.

Headline growth figures are always real unless stated otherwise, because a 6% nominal expansion during 5% inflation is barely any growth at all. The conversion factor between them is the gdp-deflator.

Nominal GDP still matters in its own right. Tax revenue, corporate earnings and debt service are all nominal, so debt-to-gdp dynamics and the sustainability of government finances depend on nominal growth relative to nominal interest rates.

Example: nominal GDP is $29.0 trillion and grows to $30.7 trillion, up 5.9%. With a 3.3% deflator, real growth is 1.059 / 1.033 minus one, about 2.5%.

Related: gdp, gdp-deflator, gdp-vintages, debt-to-gdp, potential-gdp

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