Can You Explain Real GNP Versus Nominal GNP?

GNP is the total dollar value of the finished goods and services that were produced for consumption in a certain time by all the country’s citizens. The GNP figure that does not take into effects of inflation is called nominal GNP. Due to inflation (general increase in price level) what happens is that we can actually purchase a lesser number of goods using the same amount of money than we could do earlier. It reduces the purchasing power and as nominal GNP does not account for inflation, it is not the true representation. When we say real GNP it means that the GNP has been adjusted for the effects of inflation and it represents the actual gross national products after accounting for the rising prices.

The nominal GNP is the value of all the production valued at this year's prices. Real GNP is valued at prices of a base year. Thus, if an economy produces in year 1 2 oranges and 3 apples, at prices 5 and 6 respectively and in year 2, 4 oranges and 6 apples, at prices 9 and 8, then:

nominal GDP year 1=2*5+3*6=28
nominal GDP year 2= 4*9+6*8=84

Notice that you can not compare production between two years because prices increased. It is not correct to state that production multiply by 3. So you should compute real GNP at prices of year 1

Real GDP year 1 (at prices of year 1) = 28 (same as before)
Real GDP year 2 (at prices of year 1) = 4*5+6*6=56

So you are correct if you say that real GNP doubles

The GNP of a country is the money value of final products made by the citizens of that country during a particular period, usually a year.Money value is taken into account since diverse products can not be added.If this money value is in terms base year price, the GNP is said to be real.If this money value is in terms current year price, the GNP is said to be nominal.