Explain the difference between nominal GDP and real GDP. How does inflation influence economic planning and budget forecasting?

1. Nominal GDP measures total output using current prices, including inflation effects.
2. Real GDP adjusts output for inflation, reflecting true volume growth of goods and services.
3. Inflation raises nominal GDP, inflating revenue projections and fiscal targets based on it.
4. Budget forecasts use nominal GDP to estimate tax revenues and fiscal deficit ratios.
5. Low inflation can cause nominal GDP to underperform despite real growth, complicating fiscal planning.
6. Accurate inflation estimates are crucial for realistic economic planning and avoiding revenue shortfalls.

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