Explore BrainMass

Explore BrainMass

    Detailed Explanation with Example: Nominal and Real Quantity

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    This is an important notion in economics which infuses several concepts dealing with money. We have "nominal" quantities and "real" quantities. For example, one would talk about the nominal price of a house as opposed to real price of the same house. Or one might talk about nominal deficit as opposed to real deficit.
    What's the difference between nominal and real quantities and why make the distinction?

    Please provide at least 100 words.

    © BrainMass Inc. brainmass.com December 24, 2021, 10:55 pm ad1c9bdddf
    https://brainmass.com/economics/inflation/detailed-explanation-example-nominal-real-quantity-519347

    SOLUTION This solution is FREE courtesy of BrainMass!

    Problem: This is an important notion in economics which infuses several concepts dealing with money. We have "nominal" quantities and "real" quantities. For example, one would talk about the nominal price of a house as opposed to real price of the same house. Or one might talk about nominal deficit as opposed to real deficit.
    What's the difference between nominal and real quantities and why make the distinction?

    Solution:
    A nominal price is the price of something in that year's currency. A real price is the price of something adjusted for inflation. For example, the price of a Big Mac was about 70 cents in 1969 and about $3.50 in 2012. Both of those prices are nominal prices: 70 cents in 1969 dollars and $3.50 in 2012 dollars. They can't be compared because the value of a 1969 dollar is different from the value of a 2012 dollar. To compare the prices you have to adjust for inflation. For example, after looking up data on the price levels in 1969 and 2012, you might calculate that a Big Mac in 1969 cost $3.75 in 2012 dollars. Now you have real prices and can compare them: the price of a 1969 Big Mac is $3.75 in 2012 dollars, and the price of a 2012 Big Mac is $3.50 in 2012 dollars, so you can legitimately conclude that Big Macs have actually gotten cheaper since 1969 even though their nominal price (the price printed on the menu) has increased by 400%.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 10:55 pm ad1c9bdddf>
    https://brainmass.com/economics/inflation/detailed-explanation-example-nominal-real-quantity-519347

    ADVERTISEMENT