Nominal money, in economics, is the quantity of money measured in a particular currency and is directly proportional to the price level.
This means, among other things, that if the price level rises by 10%, 10% more money than before is necessary in order to maintain stability. For example, a $20 item will cost $22 after the price level increases by 10%.
Real money is the quantity of money measured as a constant (e.g. the value of the dollar in 1997), and it relates to Nominal money as follows:
Nominal money = Price level * Real money.
Therefore:
Real Money = Nominal money/Price Level,
where Real Money is the quantity of money measured in terms of what it will buy. Thus, $22 at the new price level will buy the same amount of goods as $20 at the original price level.
Famous quotes containing the words nominal and/or money:
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser—in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.”
—Abraham Lincoln (1809–1865)
“For the people in government, rather than the people who pester it, Washington is an early-rising, hard-working city. It is a popular delusion that the government wastes vast amounts of money through inefficiency and sloth. Enormous effort and elaborate planning are required to waste this much money.”
—P.J. (Patrick Jake)