What is the difference between nominal GDP and real GDP?

Nominal GDP and real GDP differ primarily in how they account for changes in price levels over time. Nominal GDP measures the total value of all finished goods and services produced within a country's borders in a specific time period, calculated using current market prices. This means it reflects the prices at the time of measurement, without any adjustments for inflation or deflation that may have occurred.

In contrast, real GDP adjusts for inflation by using the prices from a base year, allowing for a more accurate reflection of an economy's actual growth and productivity over time. This adjustment removes the effects of price changes, enabling comparisons across different time periods that are not distorted by inflation.

Therefore, the correct answer highlights that nominal GDP is measured at current prices and does not consider inflation, while real GDP provides a clearer picture of economic performance by accounting for changes in price levels. This distinction is crucial for economists and policymakers when evaluating economic growth and making decisions based on that data.