How to Calculate a Nominal Value
A nominal value equals the real value multiplied by the price index divided by 100, which restates a figure in the prices of its own period.
The Nominal Value formula
Calculator
Enter a real value and a price index to get the nominal figure, then compare nominal against real growth across two periods.
The amount already stated in the prices of the base period.
CPI or another index scaled so the base period reads 100.
The same measure later on, still in base-period prices.
The index for that later period, built on the same base.
Real value times the index divided by 100 gives $1,800, the amount handed over in the money of that period.
- Nominal value in the later period
- $2,079
- Nominal growth
- 15.5%
- Real growth
- 5%
- Inflation between the periods
- 10%
- Real growth plus inflation
- 15%
The later figure converts to $2,079, and the two nominal amounts are the numbers that would actually appear on a bill.
The money amount rose 15.5%, which mixes the extra quantity together with the higher prices.
Holding prices at the base period, the underlying amount rose 5%, and this is the figure that tracks purchasing power.
The index moved 10%, which is the share of nominal growth that bought nothing extra.
Adding the two rates gives 15% against the exact 15.5%, and the difference is the cross term the shortcut drops.
How to calculate Nominal Value, step by step
- 1Start from the real value. Take the amount measured in base-period prices, the figure that has already had price changes stripped out of it.
- 2Find the price index for that period. Use CPI or another index scaled so the base period reads 100, and make sure it belongs to the period you are converting into.
- 3Divide the index by 100. That turns the index into a multiplier. An index of 150 becomes 1.5, meaning prices sit half again as high as in the base period.
- 4Multiply the real value by the multiplier. The product is the nominal value, the amount actually paid in the money of that period.
- 5Reverse the step to go back to real terms. Dividing a nominal amount by the same multiplier returns it to base-period prices, which is what makes figures from different periods comparable.
Worked example: Nominal Value
A rent worth $1,200 in base-period prices falls in a period where the price index is 150, so the nominal rent = 1,200 × (150 ÷ 100) = $1,800. Later the real rent is $1,260 and the index has reached 165, giving a nominal rent of 1,260 × 1.65 = $2,079. Nominal rent grew (2,079 − 1,800) ÷ 1,800 × 100 = 15.5 percent, while real rent grew 5 percent and prices rose 10 percent.
Nominal Value questions
What is the difference between a nominal and a real value?
A nominal value is measured in the prices of the period it belongs to, while a real value is measured in the prices of one base period. The gap between the two is nothing but the change in the price level, which is why only real figures compare across time.
Why is nominal growth larger than real growth when prices rise?
Nominal growth carries the change in quantity and the change in prices together. Multiplying 1.05 of real growth by 1.10 of inflation gives 1.155, so a 5 percent real gain alongside 10 percent inflation shows up as 15.5 percent in nominal terms.
Can you just add inflation to the real growth rate?
Adding gives a close approximation: 5 percent plus 10 percent is 15 percent against the exact 15.5 percent. The missing half point is the cross term, and the shortcut drifts further from the exact answer as the two rates get larger.
Get AP Econ exam tips in your inbox
Occasional emails with study tips, new interactive graphs, and exam-season reminders. Free, no spam.
No spam. Unsubscribe anytime. Read our privacy policy.
Keep track of what you have studied
A free EconLearn account adds progress tracking, your quiz history, and achievements. Studying here is free either way, and there is nothing to pay for as a student.
Create a free accountAlready have one? Sign in
Last updated