What is the difference between nominal GDP and real GDP?

Nominal GDP measures the total economic output of a country without accounting for inflation or deflation over time. It reflects the current market prices of goods and services produced within a country. On the other hand, real GDP adjusts this economic output to account for changes in the price level, using a specific base year to measure growth or contraction in terms of goods and services produced. This adjustment allows for a more accurate comparison of economic performance over time, as it removes the effects of inflation or deflation.

Understanding the distinction between these two measures is crucial for economic analysis. Real GDP provides a clearer picture of an economy's true growth by reflecting the volume of production, while nominal GDP can give a skewed impression of economic health if large price changes are occurring. Thus, option D accurately describes how nominal GDP does not adjust for inflation, whereas real GDP does, making it the correct choice.