Real Value

AAA

DEFINITION of 'Real Value'

Nominal value adjusted for inflation. Real value is obtained by removing the effect of price level changes from the nominal value of time-series data, so as to obtain a truer picture of economic trends. The nominal value of time-series data such as gross domestic product and incomes is adjusted by a deflator to derive their real values.

INVESTOPEDIA EXPLAINS 'Real Value'

Real values are more important than nominal values for economic measures such as GDP and personal incomes because they help ascertain the extent to which increases over time are driven by inflation and what is driven by actual growth.

For example, if personal income is $50,000 year 1 and $52,000 in year 2, but the rate of inflation is 3%, then the nominal growth rate of income is 4%, while the real growth rate is 1%.

In the U.S., the Bureau of Economic Analysis maintains the GDP Deflator that is used to compute the real rate of economic growth. The Deflator uses 2005 as the base year, which means that it is set to 100 for 2005, with other years reported relative to the 2005 dollar.

RELATED TERMS
  1. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  2. GDP Price Deflator

    An economic metric that accounts for inflation by converting ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Real Rate Of Return

    The annual percentage return realized on an investment, which ...
  5. Nominal GDP

    A gross domestic product (GDP) figure that has not been adjusted ...
  6. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
Related Articles
  1. Why The Consumer Price Index Is Controversial
    Economics

    Why The Consumer Price Index Is Controversial

  2. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  3. Banking Stress Tests: Would Yours Pass?
    Credit & Loans

    Banking Stress Tests: Would Yours Pass?

  4. Stagflation, 1970s Style
    Economics

    Stagflation, 1970s Style

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center