| Flugelhorns | Price | GDP | |
| 2019 | 25,000 | $200 | $5 Million |
| 2018 | 20,000 | $100 | $2 Million |
| Percentage Change | 25% | 100% | 150% |
To understand the difference in “nominal” and “real” GDP, let’s return to Absurdia. But this time let’s make the temporary assumption that they only produce Flugelhorns. The data for 2018 and 2019 is provided above.
GDP increased from $2,000,000 in 2018 to $5,000,000 in 2019. This is a 150% increase ($3,000,000/$2,000,000 = 1.50 or 150%). But you can see that the Absurdians aren’t 150% better off. A significant portion of this increase in GDP was due to the increase in the price of Flugelhorns. In reality, they only have 25% more Flugelhorns (5,000/20,000 = .25 or 25%). And so, the “real” (meaning price-adjusted) increase in production/expenditure was 25%.
Now let’s see how this extends to a more realistic economy where more than one type of good is produced. The following tables represent the GDP data for Absurdia with them again also producing beer steins.
| Quantity 2019 | Price | GDP 2019 | |
| Steins | 200,000 | $20 | $4 Million |
| Flugelhorns | 25,000 | $200 | $5 Million |
| Total | $9 Million |
| Quantity 2018 | Price | GDP 2018 | |
| Steins | 200,000 | $10 | $2 Million |
| Flugelhorns | 20,000 | $100 | $2 Million |
| Total | $4 Million |
It appears that Absurdia has seen an increase in GDP of 125% ($5,000,000/$4,000,000 = 1.25 or 125%). But we also note that prices for both goods increased over the same period. So, how much better off are the Absurdians in real terms? To determine this, we’ll restate the 2018 GDP using 2019 prices. Then we’ll compare.
| Quantity 2018 | Price in 2019 | Real GDP for 2018 | |
| Steins | 200,000 | $20 | $4 Million |
| Flugelhorns | 20,000 | $200 | $4 Million |
| Total | $8 Million |
When we adjust historic data to a common set of prices, we rename the data set with the prefix “real”. If we’re very careful, we also tell our reader what common set of prices we used. So, REAL GDP in 2018 was $8,000,000 (stated in 2019 prices). REAL GDP in 2019 was 9,000,000 (already stated in 2019 prices). So, Real GDP (RGDP) increased by only 12.5%, much less than the 125% nominal GDP increased by.