Real vs. Nominal
Supplementary resources by topic. Real vs. Nominal is one of 51 key economics concepts identified by the National Council on Economic Education (NCEE) for high school classes.
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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!
Relative price is another term for the real price of a good or service. When we say that the relative price of computers has fallen in recent years, we mean that the price of computers relative to or measured in terms of other goods and services—such as TVs or cars—has declined. Relative prices of individual goods and services can decrease even if nominal prices are all increasing, because of inflation.
Real versus nominal value, at Answers.com
In economics, the nominal values of something are its money values in different years. Real values adjust for differences in the price level in those years. Examples include a bundle of commodities, such as Gross Domestic Product, and income. For a series of nominal values in successive years, different values could be because of differences in the price level. But nominal values do not specify how much of the difference is from changes in the price level. Real values remove this ambiguity. Real values convert the nominal values as if prices were constant in each year of the series. Any differences in real values are then attributed to differences in quantities of the bundle or differences in the amount of goods that the money incomes could buy in each year....
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....
In the News and Examples
Tax Freedom Day:
- Tax Freedom Day 2007, at AdamSmith.org
How long do we have to spend working for the government, rather than ourselves? The answer is nearly half the year....
- Americans work 4 months to pay this year's taxes, by Jeanne Sahadi at CNN.com
'Tax freedom day' -- the day Americans can stop working for government and start working for themselves -- is April 30. But each state's day differs. See how yours ranks.
A Little History: Primary Sources and References
Advanced Resources
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