Real vs. Nominal
Definitions and Basics
- Definition: The nominal value of a good is its value in terms of money. The real value is its value in terms of some other good, service, or bundle of goods. Examples:
- Nominal: That CD costs $18. Japan's science and technology spending is about 3 trillion yen per year.
- Real: A year of college costs about the value of a Toyota Camry. Those tickets to see Van Halen cost me three weeks' worth of food!
Gross Domestic Product. from the Concise Encyclopedia of Economics In practice BEA first uses the raw data on production to make estimates of nominal GDP. or GDP in current dollars. It then adjusts these data for inflation to arrive at real GDP. But BEA also uses the nominal GDP figures to produce the "income side" of GDP in double-entry bookkeeping. For every dollar of GDP there is a dollar of income. The income numbers inform us about overall trends in the income of corporations and individuals. Other agencies and private sources report bits and pieces of the income data, but the income data associated with the GDP provide a comprehensive and consistent set of income figures for the United States. These data can be used to address important and controversial issues such as the level and growth of disposable income per capita, the return on investment, and the level of saving. Interest. from the Concise Encyclopedia of Economics The real interest rate on money loans will be the stated (or nominal) rate minus the anticipated rate of inflation. In countries that are experiencing rapid growth in the amount of money available, interest rates will be very high. But these will be not be high real interest rates. Instead, they will be high nominal interest rates. If expected inflation is 10 percent, for example, and if the real interest rate is 5 percent, the nominal interest rate is 15 percent. But someone who lends money at 15 percent for a year will not be repaid with 15 percent more resources at the end of the year. Rather, the lender will be repaid with 15 percent more money and will be able to use that money to buy only 5 percent more resources.