The Role of Gross Domestic Product in Economy


The economy is the basis of the existence of every particular society. The economic processes allow providing well-being of people and the development of the state as the whole. In the latter respect, i. e. the country-wide development, the notion of the Gross Domestic Product (GDP) is the most important one as it manifests the wellbeing of the whole country (Mankiw, 2008). To be well aware of the topic of Gross Domestic Product, it is however necessary to differentiate between the nominal and real Gross Domestic Product, understand the elements that constitute each of them, and the evidence each type of Gross Domestic Product presents for the countries economy.

Nominal GDP

Accordingly, nominal GDP is the level of the Gross Domestic Product evaluated and calculated according to the prices of the year it was considered (Mankiw, 2008). It is usually transformed by the processes of inflation or deflation that change the value of money and respectively change the value of the GDP as such. Considering the nominal GDP, the concept of “that year dollars” comes into play (Mankiw, 2008). If a nominal GDP is taken in isolation, it is said that the 1983 GDP is measured in 1983 dollars, meaning that the value of dollars in 1983 was different from the value of 2009 dollars. Thus, nominal GDP is the GDP taken at a specific moment.

Real GDP

The real GDP is, on the other hand, measured in the current dollars, i. e. it is adjusted to changes in prices and inflation or deflation of the currency (Mankiw, 2008). The real GDP is thus the representation of the products and services produced by the country for a given year under the given prices but also with the consideration of the price changes and currency value modifications (Mankiw, 2008). Drawing from this, the components that constitute the nominal and real GDP are similar with the exception that the nominal GDP considers the specific data for the year, while the real GDP inquires about the factors that might change the GDP and consider inflation, deflation, and price changes in calculating the countries GDP.

The GDP in the United States

In the United States, the GDP for the last two years experienced steady growth irrespective of the stressed world economic recession (BEA, 2009). Needless to say, nominal and real GDP levels in the USA differ because the value of the dollar has changed over the years. Thus, in 2007 the nominal GDP amounted to $13 254,1 billion, while the real GDP in current dollars for the same year was $14,077,6 billion (BEA, 2009). In 2008, the tendency to increase in the current dollar value was also observed which led to the real GDP for the year is larger than the nominal one. The real GDP reached the level of $14,441,4 billion, while the nominal one was at the level of $13,312,2 billion (BEA, 2009).


Thus, the figures of the GDP are so important to the country’s economy because they demonstrate the actual well-being levels observed in this country (Mankiw, 2008). Moreover, GDP allows assessing the production capacities of the country’s industry and economy on the whole. GDP can thus be viewed as the summed-up results of all the work carried out by the country for a specific year and under the specific pricing conditions and currency value levels.


  1. Mankiw, G. (2008). Principles of Economics. South-Western College Pub; 5 edition.
  2. BEA. (2009). National Economic Accounts.
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