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Real vs Nominal..what does this realy mean?













Most times we come across the word real and nominal and yet don't understand what it actually means, well I think this will help.

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 iphone costs a  100,000 Naira or the science and technology spending is about 3 trillion yen per year.
Real: A year of college costs about the value of a Toyota venza or those tickets to see the movie dead pool cost me a day worth of food!

Lets look at it in terms of the following :

Real vs Nominal VALUE
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
Real vs Nominal GDP
In practice the CBN first uses the raw data on production to make estimates of nominal GDP, or GDP in current naira. It then adjusts these data for inflation to arrive at real GDP. But CBN also uses the nominal GDP figures to produce the "income side" of GDP in double-entry bookkeeping. For every Naira of GDP there is a Naira 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 country . 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
Real vs Nominal INTEREST RATES
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  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.

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