Nominal vs. Real: What's the Difference?
Edited by Janet White || By Harlon Moss || Published on November 18, 2023
Nominal refers to values or figures that aren't adjusted for inflation, often face value. Real pertains to values adjusted for inflation, reflecting true purchasing power.
Key Differences
Nominal values represent quantities as they are, without adjustments. They're the face values, often the first figures reported. Real values, in contrast, are adjusted for inflation, providing a more accurate picture over time. They reflect the true economic value, considering purchasing power changes.
In economics, nominal GDP measures a country's economic output using current prices, not considering inflation. Real GDP, however, adjusts for inflation, offering a clearer view of economic growth. It reveals the actual increase in goods and services, beyond price changes.
Nominal interest rates are the rates advertised by financial institutions. They don't account for inflation's impact. Real interest rates, however, subtract inflation, showing the true cost of borrowing or the real yield on savings. They indicate the actual growth of purchasing power.
In personal finance, nominal income is the salary or wage earned, as stated in monetary terms. Real income, however, accounts for inflation's impact on purchasing power. It's a measure of what the income can actually buy, reflecting economic reality.
Nominal values are often simpler to understand, as they are the initial, unadjusted figures. Real values, though more complex, are essential for accurate comparisons over time, revealing the actual economic or financial situation.
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Comparison Chart
Adjustment for Inflation
No adjustment for inflation
Adjusted for inflation
Reflects
Face value or current prices
Purchasing power or economic reality
Use in Economics
Nominal GDP, Nominal Interest Rates
Real GDP, Real Interest Rates
Importance
Simple, initial figures
Accurate for long-term comparisons
Measure of
Monetary value in current terms
Economic value considering inflation
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Nominal and Real Definitions
Nominal
Existing in name only, not in reality.
His role in the project was nominal, with little actual involvement.
Real
Sincere and authentic, not artificial.
Their friendship is real and enduring.
Nominal
Very small compared to what is typical.
The fee for membership is nominal and affordable for most.
Real
Not imaginary or illusory; genuine.
His concern for the environment is real.
Nominal
Pertaining to a named or stated value, not necessarily real.
The nominal GDP growth was impressive, but inflation was high.
Real
Legitimate or deserving serious consideration.
The concerns raised are real and need addressing.
Nominal
Insignificant or trifling in amount.
She made only a nominal contribution to the charity.
Real
Actually existing as a thing or occurring in fact.
The threat was real and immediate.
Nominal
Relating to or consisting of names.
The list included nominal species of the region.
Real
Adjusted for inflation; reflecting purchasing power.
The real income of workers has stagnated.
Nominal
Of, resembling, relating to, or consisting of a name or names.
Real
Being or occurring in fact or actuality; having verifiable existence
Real objects.
A real illness.
Nominal
Assigned to or bearing a person's name
Nominal shares.
Real
True and actual; not imaginary, alleged, or ideal
Real people, not ghosts.
A film based on real life.
Nominal
Existing in name only; not real
“a person with a nominal religious position but no actual duties” (Leo Damrosch).
Real
Of or founded on practical matters and concerns
A recent graduate experiencing the real world for the first time.
FAQs
Can nominal values be misleading?
Yes, they can be misleading as they don't account for inflation's impact.
What is "real" in terms of economic indicators?
Real economic indicators are adjusted for inflation, reflecting true value or growth.
Is nominal income the same as real income?
No, nominal income is the face value, while real income accounts for inflation.
Is nominal GDP useful?
Yes, for immediate, short-term economic assessments.
What's more important, nominal or real values?
Real values are more important for accurate long-term comparisons.
Does nominal always mean small?
In general usage, it can mean small or insignificant, but not always in economics.
What does "nominal" mean in economics?
It refers to values not adjusted for inflation, like nominal GDP or interest rates.
Why adjust values for inflation?
To get a real sense of economic value or growth, removing the effect of price changes.
Can something be nominal but significant?
Yes, in contexts where nominal doesn't imply insignificance.
Why use nominal values at all?
They're simpler and useful for short-term or immediate comparisons.
Does "real" imply reality in all contexts?
Generally, it implies something genuine or actual.
Are nominal values easier to understand?
Yes, because they're unadjusted and straightforward.
Does "real" always mean authentic?
In general usage, yes, but in economics, it specifically means adjusted for inflation.
Can real wages decrease?
Yes, real wages can decrease if inflation outpaces nominal wage growth.
Are nominal interest rates lower than real rates in inflation?
They can be, if inflation is higher than the nominal rate.
Is real income crucial for standard of living?
Yes, as it reflects actual purchasing power.
Are real values constant over time?
They can fluctuate with changes in inflation rates.
Can nominal and real values be the same?
Yes, when inflation is zero or negligible.
Can real values decrease while nominal values increase?
Yes, if inflation is high, real values can decrease even as nominal values rise.
Is real GDP a better economic indicator?
Yes, for understanding true economic growth over time.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
