Nominal

Nominal is a term used in economics to describe a value or price that has not been adjusted for inflation. This means that the nominal value of a good or service is the same as it was when it was first purchased, regardless of how much prices have changed in the meantime.

For example, if you buy a loaf of bread for $1 today, the nominal price of the bread is $1. If the price of bread doubles next year, the nominal price of the bread will still be $1, but the real price of the bread will have increased to $2.

The real price of a good or service is the price that has been adjusted for inflation. This means that the real price of a good or service takes into account how much prices have changed in the general economy.

In the example above, the real price of the bread would be $2 after inflation has doubled the price of bread.

Nominal values are often used in economics to compare different values over time. This is because nominal values can be easily compared, even if the prices of the goods or services being compared have changed.

However, it is important to remember that nominal values do not take into account inflation. This means that nominal values can be misleading when comparing values over time.

For example, if you compare the nominal income of two people over time, you may find that one person's income has increased more than the other person's income. However, this does not necessarily mean that the first person is better off than the second person. It is possible that the first person's income has increased more than the second person's income simply because inflation has been higher for the first person.

In order to compare values over time, it is important to use real values. Real values take into account inflation and can be used to compare values accurately.

Nominal values are also used in finance to describe the value of a financial asset. The nominal value of a financial asset is the value of the asset at its original issue. This is in contrast to the market value of a financial asset, which is the value of the asset at a given point in time.

The nominal value of a financial asset is important because it is used to calculate the interest payments on the asset. The interest payments are calculated as a percentage of the nominal value of the asset.

The market value of a financial asset is also important because it is used to determine the price of the asset. The price of a financial asset is the amount of money that someone is willing to pay for the asset.

The nominal value and the market value of a financial asset can be different. This is because the market value of a financial asset can change over time, while the nominal value of a financial asset remains the same.

For example, if you buy a bond with a nominal value of $100, the interest payments on the bond will be calculated as a percentage of the nominal value of the bond. This means that the interest payments will be the same regardless of how much the market value of the bond changes.

However, the market value of the bond can change over time. This means that the price of the bond can change over time. If the market value of the bond increases, you can sell the bond for more money than you paid for it. If the market value of the bond decreases, you can sell the bond for less money than you paid for it.

It is important to understand the difference between nominal value and market value when investing in financial assets. The nominal value of a financial asset is the value of the asset at its original issue. The market value of a financial asset is the value of the asset at a given point in time. The market value of a financial asset can change over time, while the nominal value of a financial asset remains the same.