September 20, 2018 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
ANNUITY: The receipt of payments at regular intervals from a established fund. Annuities are commonly used for insurance and retirement programs. It works in this way: A fund, which can be established either through a one-time sum of money or a series of payments, is exhausted over time with fixed, periodic payments. The amount of each payment depends on the interest accrued on the outstanding balance in the fund, and the length of time scheduled to exhaust the fund. For example, if your pension plan is based on an annuity that begins payments at the age of 65, then the size of the payments depends on whether you expect to live 5, 10, 15, or more years and set up payments accordingly. It's very similar to amortization, but in the reverse direction.

Visit the GLOSS*arama


The total market value, measured in current prices, of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. The key is that nominal gross domestic product is measured in current, or actual prices, the prices that buyers actually pay for goods and services purchased. Nominal gross domestic product is also termed current gross domestic product. A contrasting measure is real gross domestic product, which adjusts for inflation by measuring production at constant prices.
Nominal gross domestic product is actually nothing more than gross domestic product. A comparison between the definitions of gross domestic product and nominal gross domestic product indicates that both are virtually identical, with one minor difference. Nominal gross domestic product includes the phrase "measured in current prices."

This additional phrase only serves to emphasize that (nominal) gross domestic product is the total market value of all goods and services IN CURRENT PRICES. Nominal gross domestic product is actually just an extended, and somewhat more precise, name for gross domestic product. Whenever the term gross domestic product is used, without a qualifier or adjective, such as "real" or "constant," then it is nominal gross domestic product, it is CURRENT production at CURRENT prices.

So why the difference? Why the extra phrase? Why not just leave it at "gross" domestic product, with no "nominal" added? The extra phrase is included for contrast with real gross domestic product, an extremely important related measure of economic activity. Real gross domestic product adjusts nominal gross domestic product for inflation, or for changes in the average price level. Nominal gross domestic product is thus the current value of gross domestic product without adjusting for inflation.

While nominal gross domestic product is THE measure of current production at current prices, it is NOT the best indicator of economic progress. Because any change in nominal gross domestic product could result from changes in physical production, the prices of this production, or both, it is impossible to know how much progress the economy is making JUST by looking at changes in nominal gross domestic product.

For example, a 5 percent increase in nominal gross domestic product could be the result of:

  • A 5 percent increase in physical production, but no change in prices. Here there is a lot of progress, with no inflation.

  • A 5 percent increase in prices, but no change in physical production. Here there is a lot of inflation, but no progress.

  • A 4 percent increase in physical production and a 1 percent increase in prices, 1 percent increase in physical production and a 4 percent increase in prices, or any other combination of production and price changes that add up to 5 percent.

  • A 2 percent decrease in physical production and a 7 percent increase in prices, a 7 percent increase in physical production and a 2 percent decrease in prices, or any other combination of production and price changes that add up to 5 percent.

In fact, a relatively robust increase in nominal gross domestic product could result during a business-cycle recession, if inflation is high. Using only nominal gross domestic product is likely to disguise changes in real production.


Recommended Citation:

NOMINAL GROSS DOMESTIC PRODUCT, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2018. [Accessed: September 20, 2018].

Check Out These Related Terms...

     | real gross domestic product | net domestic product | national income | personal income | disposable income | gross national product |

Or For A Little Background...

     | gross domestic product | business cycles | current production |

And For Further Study...

     | gross domestic product, ins and outs | gross domestic product, welfare | gross domestic product, expenditures | gross domestic product, income | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research | business cycle indicators | circular flow | stabilization policies | potential real gross domestic product | unemployment | inflation |

Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis | Bureau of Labor Statistics |

Search Again?

Back to the WEB*pedia


[What's This?]

Today, you are likely to spend a great deal of time at a garage sale trying to buy either a flower arrangement with a lot of roses for your grandmother or a wall poster commemorating the first day of winter. Be on the lookout for small children selling products door-to-door.
Your Complete Scope

This isn't me! What am I?

Three-forths of the gold mined each year is used to manufacture jewelry.
"No amount of business school training or work experience can teach what is ultimately a matter of personal character. "

-- Truett Cathy, Chick-fil-A Inc. founder

Weakly Pareto Optimal
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback

| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2018 AmosWEB*LLC
Send comments or questions to: WebMaster