Nominal Versus Real
In Economics we are often concerned with nominal versus real values. What these two opposite terms mean conceptually in Economics context is a question that is going to be well addressed here so that students and business professionals are left with no doubt about these two frequent terms in economics.

Nominal Value: Nominal value refers to the value which is obtained without taking in to consideration the inflation effect. It means that inflation is not adjusted while calculating the nominal value. It ,then, turns out that any value calculated during a specific time period with regard to the prices of hat period is called nominal value.
Suppose my salary in january 2010 is $1000, this is my nominal salary because it is based on the current 2010 prices.

Real Value: In contrast to nominal value, real value discloses the actual financial position disclosed in real terms for which inflation has been taken into consideration and have adjusted for.

Let exemplify the above process and take a real world problem. In 1948, the real value of the UK output, measured by gross domestic product was &11.8 billion. After half a century it skyrocketed to & 814.2 billion in 1999. It seems that the output has undergone an enormous increase, about 69 times the output of 1948.We are guessing UK progress to be exponential but our estimate is totally wrong. Now real versus nominal play the actual game.

Look, in 1948, the rate of inflation was negligible and the output of &11.8 billion was both the nominal and the real output of UK, so no adjustment for real output was needed. &11.8 billion output is calculated based on the 1948 prices, since then, prices have increased 20 times, so we have to adjust the nominal value of &814.2 billion for inflation to result in the real value. Only then , we can juxtapose the two outputs of 1948 and 1999.

So, in order to calculate the real output of UK in 1999 we have to strip out the inflation amount that is about 20 times increase in prices as compared to the prices in 1948.

All we have to do is to divide 814.2 by 20 that results in 40.71 rounded off as &41 billion. Now you see the actual increase in output is just 3.5 times the output in 1948. This is what nominal versus real play in economic estimations.

One other thing that people often use as marking boundry between nominal and real values is that something measured in cash is considered nominal and something measured in real goods is considered real. There shouldn't be any confusion. When you measure something in cash, it is nominal because currencies are never constant, they keep on fluctuating due to inflation phenomenon. So you are calculating based on the current inflated prices and don't have any regard to inflation, so that's nominal when something is showed in currency units.

Again when you measure something in units of real goods, not having any regard to prices, you are calculating the real value. In order to clarify the above description, we take an example:

In the year 2001 , you were the owner of a refrigerator, washing machine and a plot of land. The nominal value of these three properties in 2001 was supposed to be $2000. In the year 2010, you calculated the nominal value of your three ownerships was remarkably high , suppose $10,000, due to very high inflation.

If someone who is not familiar with inflation is given the assignment to compare the two situations, he would say that there is $8000 change in financial position. But in real terms, there is no change at all, the change of $8000 is just the increase in prices and don't have to be counted for a real change.

In nominal terms, or alternatively in cash terms the growth of $8000 is remarkable but since then prices have gone in air which have devalued the currency to a great deal, so it is just a pseudo change.

If you are seeing the financial position based on number of units of goods, then there is the same piece of land, the same refrigerator and the same washing machine, nothing else added. So there is no change in the number of units of real goods, the change is just in prices.

Nominal values can be deflated to real values when the rate of inflation is applied to it in reverse order making the economic information useful for the financial analyst.