Nominal Gdp Formula How To Calculate Nominal Gdp

Formula to Calculate Nominal GDP

The Nominal GDPNominal GDPNominal GDP (Gross Domestic Product) is the calculation of annual economic production of the entire country’s population at current market prices of goods and services generated by four main sources: land appreciation, labour wages, capital investment interest, and entrepreneur profits calculated only on finished goods and services.read more can be termed as the total of all the services, finished products, and goods produced in a given single year which shall be stated at the current market prices. The formula to calculate nominal GDP is

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Where,

C is the Private consumptionI is the Gross InvestmentG is the Government InvestmentE is ExportsM is Imports

Calculation of Nominal GDP

The calculation of nominal GDP can be done using three methods which are the expenditure method, income method, and production method.

The one discussed above is the expenditure method, where all the expenses are spent on the domestic purchase of services and goods in a given year.In this method, we subtract imports and add up exports as the goods that have been exported have been produced in the nation, whereas the goods that are imported are produced elsewhere.The nominal growth domestic product considers the current prices and growth compared to the previous year’s GDP.

Examples

Example #1

KPL is a developing country, and the statistics department provides you with the below information. You are required to compute the nominal GDP of the country.

Solution

Below is given data for the calculation of nominal GDP.

Private Consumption (C): 5000000.00Gross Investment (i): 6250000.00Government Investment (G): 5937500.00Imports (M): 4400000.00Exports (E): 4840000.00

Therefore, the calculation of nominal growth domestic product can be done as follows,

= 50,00,000 + 62,50,000 + 59,37,500 + (48,40,000 – 44,00,000)

Nominal growth domestic product will be –

Nominal growth domestic product = 17627500

Hence, the Nominal growth domestic product of the country is 1,76,27,500

Example #2

The government of St. Marteen has self-declared itself as a different country and has separated itself with the . New ministers were appointed, including the Prime Minister of the country. It has been two years since this government was formed. The Prime Minister wants to gauge his performance as the nation has been doing economically and overall growth. He asks his finance minister to make a presentation in 2 weeks on the country’s GDP.

The Finance Minister visited the statistician department and asked them to conduct a survey and other research to compute its GDP. After thorough research, the department gathers the following information:

Private Consumption: 9000000.00Government Investment: 5000000.00Imports: 15000000.00Exports: 3000000.00Net Investment: $10,000,000.00Amortize Rate: 10%

Based on the above information, you are required to calculate the Nominal GDP of the country.

Here, this is a newly formed country and wants to know its growth so that one can judge when one compares the nominal growth domestic product with a similar nation.

We first need gross investment which can be calculated as 10,000,000 / (0.9 * 0.9) = 1,23,45,679.01 as it has been amortize for 2 years at rate of 10%.

Gross Investment in Year 1 will be –

=10000000/(1-10%)

Gross Investment in Year 1 will be = 11111111.11

Gross Investment in Year 2 will be –

=11111111.11/(1-10%)

Gross Investment in Year 2 will be – 12345679.01

Therefore, the calculation of nominal GDP can be done as follows,

=9000000+12345679.01+5000000+(3000000-15000000)

Nominal GDP will be –

Nominal growth domestic product = 14345679.01

Hence, the Nominal growth of domestic product is 1,43,45,679.01

Example #3

Country SMS reviews its two years of performance by comparing what growth they have achieved compared to the previous year’s GDP. The statistics department provides you with the below details for the two years. But, first, you must compute the GDP for both the years and calculate the growth in GDP in percentage compared to the previous year.

We are given all the variants required for calculation, so we can use the formula below to calculate the nominal GDP.

Use the above information to calculate nominal GDP

Therefore, the calculation of nominal GDP for the previous year can be done as follows,

=1000000000+350000000+5000000000+2500000000-750000000

Nominal growth domestic product for the previous year will be –

Nominal growth domestic product = 8100000000

Therefore, the calculation of nominal GDP for the current year can be done as follows,

=1100000000+420000000+5100000000+2575000000-667500000

Nominal growth domestic product for the current year will be –

Nominal growth domestic product = 8527500000

To calculate the growth rate, we need to divide the difference between the current year GDP and the previous year GDP (which shall increase the value of GDP) and divide the result by the last year’s GDP.

Growth Rate in GDP will be –

= 852,75,00,000.00/8,10,00,00,000.00 – 1

Growth Rate in GDP = 5.28%

Hence, the growth rate compares to the base year is 5.28% growth.

Relevance and Uses

The nominal growth domestic product is used to know how the nation has been and whether the country’s GDP is increasing or decreasing. Hence, the concept is relatively easy to understand. However, nominal GDP is an absolute term that cannot be judged on a standalone basis. Further, nominal GDP also encompasses inflation. Hence, when one compares a year’s nominal GDP with the previous year’s nominal GDP, the growth figure could be misleading as it also includes inflation and growth rate, and hence one should use Real GDP while making a comparison.

Formula to Calculate Nominal GDP#

Calculation of Nominal GDP#

Examples#

Example #1#

Example #2#

Example #3#

Relevance and Uses#

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