Real gross domestic product may be defined as the money value of goods and services at base year’s prices produced in*the accounting year within domestic territory of a country. 

Thus, Real gross domestic product = Output X Base year’s prices. 

Nominal gross domestic product may by defined as the money value of goods and services at current year’s prices produced in the accounting year within domestic territory of a country. Thus, Nominal gross domestic product = Output x Current year’s prices. 

For example, assume 2013 as the base year. Output of tea is 2,000 tones in 2013 as well as 2017. But, the prices are ₹ 1,000 and ₹ 1,500 per ton respectively in 2013 and 2017. Nominal GDP in 2017 will be ₹ 30,00,000 (2,000 x 1,500) while real GDP in 2017 will be ₹ 20,00,000 (2,000 x 1,000). 

Real GDP is a good indicator of economic welfare because it shows real increase in the income over a period of time. Real GDP neutralises the effect of changes in prices over a period of time. Nominal GDP becomes inflated due to inflation (increase in prices) and does not reflect the true growth of national income.