nominal

(adjective)

Without adjustment to remove the effects of inflation (in contrast to real).

Related Terms

Examples of nominal in the following topics:

  • Calculating Real GDP

    • The nominal GDP is the value of all the final goods and services that an economy produced during a given year.
    • In economics, a nominal value is expressed in monetary terms.
    • For example, a nominal value can change due to shifts in quantity and price.
    • It transforms the money-value measure, nominal GDP, into an index for quantity of total output.
    • This image shows the nominal GDP for a given year in the United States.

  • The GDP Deflator

    • It is a price index that measures price inflation or deflation, and is calculated using nominal GDP and real GDP.
    • In other words, real GDP is nominal GDP adjusted for inflation.
    • If there is no inflation or deflation, nominal GDP will be the same as real GDP.
    • The GDP deflator is calculated by dividing nominal GDP by real GDP and multiplying by 100 .
    • It is calculated by dividing nominal GDP by real GDP and multiplying by 100.

  • Real Versus Nominal Rates

    • Real exchange rates are nominal rates adjusted for differences in price levels.
    • A nominal value is an economic value expressed in monetary terms (that is, in units of a currency).
    • The real exchange rate is the nominal rate adjusted for differences in price levels.
    • The nominal exchange rate would be A/B 2, which means that 2 As would buy a B.
    • Calculate the nominal and real exchange rates for a set of currencies

  • Relationship Between Expectations and Inflation

    • Anything that is nominal is a stated aspect.
    • This is the nominal, or stated, interest rate.
    • The difference between real and nominal extends beyond interest rates.
    • Each worker will make $102 in nominal wages, but $100 in real wages.
    • Workers will make $102 in nominal wages, but this is only $96.23 in real wages.

  • Shifts in the Money Demand Curve

    • The nominal demand for money generally increases with the level of nominal output (the price level multiplied by real output).
    • The real demand for money is defined as the nominal amount of money demanded divided by the price level.
    • The demand for money shifts out when the nominal level of output increases.
    • It shifts in with the nominal interest rate.
    • The level of nominal output has increased and there is a liquidity advantage in holding on to money.

  • The Demand for Money

    • Generally, the nominal demand for money increases with the level of nominal output and decreases with the nominal interest rate.
    • This is the equivalent of stating that the nominal amount of money demanded (Md) equals the price level (P) times the liquidity preference function L(R,Y)--the amount of money held in easily convertible sources (cash, bank demand deposits).
    • Specific to the liquidity function, L(R,Y), R is the nominal interest rate and Y is the real output.
    • However, when the demand for money is not stable, real and nominal interest rates will change and there will be economic fluctuations.

  • The Slope of the Long-Run Aggregate Supply Curve

    • The AS curve is drawn given some nominal variable, such as the nominal wage rate.
    • In the short run, the nominal wage rate is taken as fixed.
    • However, in the long run, the nominal wage rate varies with economic conditions (high unemployment leads to falling nominal wages -- and vice-versa).

  • Distribution Effects of Inflation

    • Assuming that loans must be paid back according to a nominal amount (i.e. the borrower must pay back $100 in one year), inflation is good for borrowers and bad for lenders.
    • This is because the inflation rate is built in to the nominal interest rate, which is the sum of the real interest rate and expected inflation.
    • For example, if the real cost of borrowing money is 3% and inflation is expected to be 4%, the nominal interest rate on a loan would be 7%.

  • The Slope of the Short-Run Aggregate Supply Curve

    • The AS curve is drawn using a nominal variable, such as the nominal wage rate.
    • In the short-run, the nominal wage rate is fixed.
    • An alternate model explains that the AS curve increases because some nominal input prices are fixed in the short-run and as output rises, more production processes encounter bottlenecks.

  • The Taylor Rule

    • The rule stipulates how much a central bank should change the nominal interest rate (real rate plus inflation) in response to changes in inflation, output, or other economic conditions.
    • In particular, the rule stipulates that for each one-percent increase in inflation, the central bank should raise the nominal interest rate by more than one percentage point.