What are some reasons one would want to apply the nominal value of a good or service in an economical analysis?
1 Answer
Nominal values are useful in situations where inflation is not a significant distortion.
Explanation:
Technically, even the least bit of inflation will distort the real value of any measure. However, in most stable economies, we worry about inflation on a year-to-year basis.
If you are analyzing something about an economy within a specific year or even a more narrow time period, then the nominal values are just easier! I'm sure you realize that computing real values from nominal values is a complication. If I were thinking about the U.S. economy just for this month or the past 90 days, for example, I don't think I'd bother converting any nominal measures to real measures.
If I do any serious analysis involving comparisons from one year to another, I would use real values, even though inflation in the U.S. has been rather low in recent decades and in the past year or two. If I were analyzing anything in an economy like Venezuela, for example, I would not even compare month-to-month changes without converting to real values instead of nominal.
