A:

Nominal values may differ from market values or real values for many reasons. Inflation may continually increase the nominal value of some items while the real value actually decreases. The nominal value of a good or service is expressed in dollars or another currency value. Real value, on the other hand, is expressed in terms of one good or service's cost relative to another good or service. Nominal values are not as responsive as real values. If another factor is reducing an item's real value, the nominal value may stay the same or even increase. Changes to one value do not necessarily impact the other.

Deflation or inflation may be a direct cause of nominal values differing from market values. Over time, these may significantly increase or decrease the spread between real and nominal value. Changing supply and demand, relative to other goods, may cause disproportionate changes in value and price. Economists analyze changes in the values of various goods and services to see whether other factors are influencing price changes. After adjusting for inflation's impact, economists may examine prices for change as appropriate to the industry.

Gross Domestic Product (GDP) is also impacted. Nominal GDP rises at a faster rate than real GDP, showing the effects of inflation on an entire economy. Economists adjust for real value to determine the accuracy of nominal value and measure the health of an economy. An increase in the quantity of products, for example, may impact real value and is a sign of economic health if it indicates greater consumer spending and consumption.

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