Nominal vs Real Values Flashcards

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Note: We may include questions that have multiple correct answers. It's useful to remember specific examples to understand these concepts better.

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What is a nominal value?

A figure measured in today’s money, not adjusted for inflation.

What is a real value?

A figure adjusted for inflation, measured in constant prices.

Why do we use real values when comparing over time?

To remove the effect of inflation and make fair comparisons.

What is the difference between nominal GDP and real GDP?

Nominal GDP uses current prices; real GDP uses base-year prices, so it shows changes in output.

What does “current prices” mean?

Prices in use at the time, so the figure is nominal.

What does “constant prices” mean?

Prices from a base year, so the figure is real.

What is a base year in real values?

The chosen year for comparison; its price index is set to 100.

How do you convert a nominal value to a real value using a price index?

Real = Nominal * 100 / price index (base year = 100). For example, £2000 at index 125 becomes £1600.

If nominal wages rise by 5% and inflation is 3%, what happens to real wages?

Real wages rise by 2%.

If prices double but output stays the same, what happens to nominal and real GDP?

Nominal GDP doubles; real GDP stays the same.