Nominal GDP and Real GDP are two ways of measuring a country’s economic output, but they differ in how they account for inflation.

Nominal GDP measures the total value of all goods and services produced within a country’s borders at current market prices during a specific time period, without adjusting for inflation. It reflects the raw economic output, including any changes in price levels. As a result, nominal GDP can be misleading when comparing economic performance over time because it may appear to grow due to rising prices rather than an actual increase in the volume of goods and services produced.

Real GDP, on the other hand, adjusts for inflation by using constant prices from a base year. This adjustment allows real GDP to provide a more accurate reflection of an economy's true growth by isolating the increase in output from the effects of inflation. By comparing real GDP figures from different years, economists can assess whether an economy is genuinely growing or if apparent growth is simply due to rising prices.

In summary, while nominal GDP shows the value of economic output at current prices, real GDP provides a clearer picture of an economy’s actual growth by accounting for changes in price levels over time.