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)
“The universal regard for money is the one hopeful fact in our civilisation. Money is the most important thing in the world. It represents health, strength, honour, generosity and beauty.... Not the least of its virtues is that it destroys base people as certainly as it fortifies and dignifies noble people.”
—George Bernard Shaw (1856–1950)