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If for years 1 and 2 (possibly a span of 20 years apart), the nominal wage and price level P of goods are respectively nominal wage rate: $10 in year 1 and $16 in year 2 price level: 1.00 in year 1 and 1.333 in year 2, then real wages using year 1 as the base year are respectively: $10 (= $10/1.00) in year 1 and $12 (= $16/1.333) in year 2.
The nominal interest rate, also known as an annual percentage rate or APR, is the periodic interest rate multiplied by the number of periods per year. For example, a nominal annual interest rate of 12% based on monthly compounding means a 1% interest rate per month (compounded). [2]
A price deflator of 50 means that the current-year price is half the base year price - price deflation. This can lead to a situation where official statistics reflect a drop in real prices, even though they nominally have stayed the same. Unlike some price indices (like the CPI), the GDP deflator is not based on a fixed basket of goods and ...
The nominal interest rate is a simple way of expressing the cost of a loan or the return on a deposit. The real interest rate accounts for the effect of inflation on the purchasing power of ...
The nominal interest earned on a deposit or paid on a loan is the balance times the nominal interest rate. For instance, a bank may advertise one-year $10,000 personal loans available at a 4% ...
The Fisher equation can be used in the analysis of bonds.The real return on a bond is roughly equivalent to the nominal interest rate minus the expected inflation rate. But if actual inflation exceeds expected inflation during the life of the bond, the bondholder's real return will suffer.
Real GDP is an example of the distinction between real and nominal values in economics.Nominal gross domestic product is defined as the market value of all final goods produced in a geographical region, usually a country; this depends on the quantities of goods and services produced, and their respective prices.
Then = / (), where PL t is the price level at t (the dollar price of a bundle of consumption goods). The simple inflation rate IS t from t –1 to t is . Thus, continuing the above nominal example, the final value of the investment expressed in real terms is