Markets · 6 pages · 12 min
Why real and nominal are different units
Nominal figures count current money, while real figures count purchasing power after a price index.
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From the opening
Nominal figures are measured in current money, the unit printed on the currency. Real figures are measured in purchasing power, which means the money amount has been adjusted by a price index so that it refers to baskets of goods rather than to slips of cash. The opening covers nominal counts current money, real counts baskets of goods, and an index does the translation.
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Inside
- Nominal counts current money
- Real counts baskets of goods
- An index does the translation
- Contracts pick one unit
- Where the idea stops applying
- A distinction worth keeping
Sources
- Real versus nominal variables
- Inflation-linked bond