Gross Demostic Product (GDP)

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Gross domestic product (GDP):It is a measurement of the total value of goods and services produced in a country during a specific period of time. Governments all over the globe check their economic health with the help of this measurement. It is of two types. One is real GDP, and another is nominal GDP. Nominal GDP:- This GDP is arrived at without factoring in inflation, whereas real GDP is gauged after adjusting for inflation. Real GDP gives a value close to the pragmatic economy. It can be derived by using a constant base year’s price. As the nominal GDP is calculated by multiplying current prices by the total value of goods and services, if they increase or decrease, we may not get the correct output of goods and services; either it may result in an inflated one or a deflated one, based on the value of the prices of goods and services. Real GDP Formula
Example -1
In India, the base year for calculating real GDP is now 2011–12. Previously, it was 2004–05.
	Example No:1
	Base Year
Basket of goods	FY-2011-12		FY-20-21	FY-21-22
	Price /quantities(qtys)
Fruits	RS.50/50 qtys		Rs.100/70qtys	Rs.120/65qtys
Vegetables	RS.25/100 qtys		RS.50/120 qtys	RS.70/100 qtys
cereals	RS.30 per kg/50 kgs		RS.60 per kg/100 kgs	RS.70 per kg (110 kg)
Hence, nominal GDP is gauged as below:
	For Base Financial Year 2011-12		For FY-20-21	For FY-21-22
Fruits	Rs.2500(i.e.,Rs.50*50 qtys)		Rs.7000(i.e.,Rs.100*70 qtys)	Rs.7800(i.e.,Rs.120*65qtys)
Vegetables	Rs.2500(i.e.,Rs.25*100 qtys)		Rs.6000(i.e.,Rs.50*120 qtys)	Rs.7000(i.e.,Rs.70*100 qtys)
cereals	Rs.1500(Rs.30*5o kgs)		Rs.6000(i.e.,Rs.60*100 Kgs)	Rs.7700(i.e.,Rs.70*110 Kgs)
Whereas the value of final goods and services, which is real GDP, is estimated by keeping the base financial year's price as a constant price and multiplying the same constant price with the quantities of goods of the respective financial years as follows:
	For Base Financial Year 2011-12		For FY-20-21	For FY-21-22
Fruits	Rs.2500(i.e.,Rs.50*50 qtys)		Rs.3500(i.e.,Rs.50*70 qtys)	Rs.3250(i.e.,Rs.50*65qtys)
Vegetables	Rs.2500(i.e.,Rs.25*100 qtys)		Rs.3000(i.e.,Rs.25*120 qtys)	Rs.2500(i.e.,Rs.25*100 qtys)
cereals	Rs.1500(Rs.30*5o kgs)		Rs.3000(i.e.,Rs.30*100 Kgs)	Rs.3300(i.e.,Rs.30*110 Kgs)
Usually, the nominal GDP is greater than the real GDP. Why? Because the nominal GDP doesn't remove inflation.
We need to divide nominal GDP with real GDP to find the GDP deflator, i.e., GDP deflator = nominal GDP / real GDP.
	Calculation of the GDP deflator based on the above example
	For FY-20-21		For FY-21-22
Fruits	7000/3500= 2.0		7800/3250=2.4
Vegetables	6000/3000=2.0		7000/2500=2.8
cereals	6000/3000=2.0		7700/3300=2.33
	Example-2
	In India, the Finance Ministry recently announced that India's GDP will reach 3.75 trillion dollars in 2023 in current price terms, up from around 2 trillion dollars in 2014.
	Since it was mentioned that "in current price terms," we can come to the conclusion that the announced GDP is a nominal GDP.
	The website, https://www.inflationtool.com/rates/india, mentions that India's 10-ate will be year average inflation rate  is at  5.92% in 2022. averaged from the year 2013 onwards
	It also gives the latest annual inflation rate, which stands at 5.09% and is estimated from the values of the Consumer Price Index for the previous 12 months ending in April 2023.
Hence, when nominal GDP is 3.75 trillion dollars in the year 2023, the year 2014 can be considered the base year as per the above-mentioned Finance Ministry's announcement for a GDP of 2 trillion dollars.
Thus, the GDP deflator and real GDP for the 2023 year can be estimated as below:
Nominal GDP during 2023			3.75 trillion dollars
Real GDP as per base year 2014			2 trillion dollars
		Average inflation rate	5.92%
		Deflator	Nominal GDP / Real GDP = 3.75/2 = 1.875
		Real GDP	Nominal GDP/Deflator = 3.75/1.875 = 2 trillion $
		References:-
		1	https://www.educba.com/real-gdp-formula/
		2	Rhttps://www.businesstoday.in/latest/economy/story/indias-gdp-crosses-3-trillion-mark-hits-375-tn-in-2023-finance-ministry-385165-2023-06-12
		3	https://www.inflationtool.com/rates/india
		4	https://www.macrotrends.net/countries/IND/india/gdp-gross-domestic-product