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In economics, a

Real values are a measure of purchasing power net of any price changes over time. For example, nominal income is often restated as real income, thus removing that part of income changes that merely reflect inflation (a general increase in prices). Similarly, for aggregate measures of output, such as gross domestic product (GDP), the nominal amount reflects production quantities

The nominal/real value distinction can apply not only to time-series data, as above, but also to cross-section data varying by region. For example, the total sales value of a particular good produced in a particular region of a country is influenced by both the physical amount sold and the selling price, which may be different from that of the country as a whole; for purposes of comparing the economic activity of different regions, the nominal output of the good in that region can be adjusted into real terms by repricing the goods at national-average prices.

The nominal value of a commodity bundle in a given year depends on both quantities and then-current prices, namely, as a sum of prices times quantities for the different commodities in the bundle. In turn nominal values are related to real values by the following arithmetic definition:

The simplest case of a

Similarly for a series of years, say five,

**Difficult Rescission Period**, the**value of money of many countries are decreases**, But can we thin that**How to protect the value of money ? and How to adjust this Inflation ?**In economics, a

**nominal value**is an economic value expressed in monetary terms (that is, in units of a currency). By contrast, a**real value**is a value that has been adjusted from a nominal value to remove the effects of general price level price changes over time. For example, changes in the nominal value of some commodity bundle over time can happen because of a change in the quantities in the bundle*or*their associated prices, whereas changes in real values reflect*only*changes in quantities.Real values are a measure of purchasing power net of any price changes over time. For example, nominal income is often restated as real income, thus removing that part of income changes that merely reflect inflation (a general increase in prices). Similarly, for aggregate measures of output, such as gross domestic product (GDP), the nominal amount reflects production quantities

*and prices*in that time period, whereas the differences between real amounts in different time periods reflect*only*changes in quantities. A series of real values over time, such as for real GDP, measures quantities over time expressed in prices of one year, called the*base year*(or more generally the*base period*). Real values in different years then express values of the bundles as if prices had been constant for all the years, with any differences due to differences in underlying quantities.The nominal/real value distinction can apply not only to time-series data, as above, but also to cross-section data varying by region. For example, the total sales value of a particular good produced in a particular region of a country is influenced by both the physical amount sold and the selling price, which may be different from that of the country as a whole; for purposes of comparing the economic activity of different regions, the nominal output of the good in that region can be adjusted into real terms by repricing the goods at national-average prices.

The nominal value of a commodity bundle in a given year depends on both quantities and then-current prices, namely, as a sum of prices times quantities for the different commodities in the bundle. In turn nominal values are related to real values by the following arithmetic definition:

- nominal value / real value = (
*P*x*Q*) /*Q*=*P*.

*P*is a price index, and*Q*is a quantity index of real value. In the equation,*P*is constructed to equal 1.00 in the base year. Alternatively,*P*can be constructed to equal 100 in the base year:- (nominal value / real value) x 100 =
*P*.

The simplest case of a

*bundle*of commodities (goods) is one that has*only one*commodity. In that case, output or consumption may be measured either in terms of money value (nominal) or physical quantity (real). Let*i*designate that commodity and let:*P*_{i}= the unit price of*i*, say, $5*Q*_{i}= the quantity of good*i*, say, 10 units.

- nominal value of good
*i*=*P*_{i}x*Q*_{i}= $5 x 10 = $50.

*only*the nominal value and price, derivation of a*real value*is immediate:- real value of good
*i*= (*P*_{i}x*Q*_{i})/*P*_{i}=*Q*_{i}= 50/5 = 10.

Similarly for a series of years, say five,

*given only*nominal values of the good and prices in each year*t*, a*real value*can be derived for each of the five years:- real value in year
*t*= (nominal value in year*t*) / (price relative to base year) =*Q*_{i}^{t}.

*bundle of goods*across different years for which*P*, a price index comparing the general price level across years, is available. Consider a nominal value (say of an hourly wage rate) in each different year*t*. To derive a real-value series from a series of nominal values in different years, one divides the nominal wage rate in each year by*P*^{t}, the price index in that year. By definition then:- real value in year
*t*= (nominal value in year*t*) /*P*^{t}. - The above generalization to a commodity bundle from the previous single-good illustration has practical use, because price indexes and the National Income and Product Accounts are constructed from such bundles of commodities and their respective prices.

A sum of nominal values for each of the different commodities in the bundle is also called a*nominal value*. A bundle of*n*different commodities with corresponding prices and quantities for each year*t*defines:

- nominal value of that bundle in year
*t*=*P*_{1}^{t}x*Q*_{1}^{t}+ . . . +*P*_{n}^{t}x*Q*_{n}^{t}.

*P*^{t}= the value of a price index in year*t*.

*P*^{t}define:- real value of the bundle in year
*t*=*Q*^{t}= (nominal value of the bundle in year*t*) /*P*^{t}.

*P*^{t}:- nominal value of the bundle in year
*t*=*P*^{t}x*Q*^{t}.

*Q*^{t}is an index of the quantities in the bundle.
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