What is the difference between a series of economic data over time measured in nominal terms versus the same data series over time measured in real terms?

Nominal value refers to the current monetary value of a series of economic data without adjusting for any inflation or changes in the value of money over time. This means that when comparing economic data over time using nominal values, it does not take into account the impact of price levels or purchasing power.

Real value refers to the value of a series of economic data after adjusting for inflation or the effects of changing price levels over time. By using real values, we can compare the purchasing power of money across different periods of time since it removes the distortions caused by changes in the price level and provides a more accurate representation of economic conditions.

Here are the main differences between nominal and real values when analyzing a series of economic data over time: 1. Inflation adjustment: The primary difference between nominal and real values is the adjustment for inflation. Nominal values do not account for changes in price levels or the value of money over time, while real values do. 2. Comparison of purchasing power: Real values allow for more accurate comparisons of purchasing power over time, as they are adjusted for inflation. Nominal values do not provide a clear picture of how the purchasing power of money has changed, making it difficult to accurately compare economic data over time. 3. Indicator of economic growth: When assessing economic growth, it is better to use real values, as they provide a truer representation of how an economy is performing over time. Nominal values can be misleading, as they may show an increase in monetary value, but do not necessarily indicate any actual growth in the economy when not adjusted for changes in price levels.

Suppose we want to compare two countries' Gross Domestic Product (GDP) over time. If we measure GDP in nominal terms, we might see that Country A's GDP has increased 15% in the past year, while Country B's GDP has increased 10%. However, without adjusting for inflation, we cannot determine if these increases are due to genuine economic growth or simply higher price levels. If we measure GDP in real terms, we can compare the actual growth and purchasing power by accounting for inflation. This adjusted data could reveal that Country A's GDP increased by only 5% in real terms, while Country B's GDP increased by 8% in real terms. This information would indicate that Country B has experienced more significant economic growth when taking into account changes in price levels.