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In: Economics

7.1: Explain the difference between a nominal value and a real value.

7.1: Explain the difference between a nominal value and a real value.

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Expert Solution

  • A real value of any entity is defined as the value that has been adjusted for inflation. While a nominal value is a value of any entity that has not been adjusted for inflation.
  • The nominal value describes the value of any good in terms of money. While the real value of any good compared or describes the value of a good in terms of other good.
  • A real value is actually the nominal value which is adjusted for inflation and it is obtained by removing all the price level change effects from the nominal value.
  • While the nominal value is actually the face value which is expressed in monetary terms that have not been adjusted for inflation and is an important component of bonds, interest payments, market value, discounts etc.
  • For example a nominal value would be when we get $40 from your parents as pocket money once in a year. While the real value can be expressed as the relative price of tickets to board a plane which can cost a person, 3 weeks worth of food.

Rahul Sunny answered 2 years ago
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