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Real Value

Real Value

What is the 'Real Value'

The real value is nominal value adjusted for inflation. The 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.

Explaining '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.


Further Reading

The real value of China's stock marketThe real value of China's stock market
www.sciencedirect.com [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

The real value of online communitiesThe real value of online communities
books.google.com [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

Financial structure and economic developmentFinancial structure and economic development
www.journals.uchicago.edu [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

Financial architecture and economic performance: international evidenceFinancial architecture and economic performance: international evidence
www.sciencedirect.com [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

The aftermath of financial crisesThe aftermath of financial crises
pubs.aeaweb.org [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

Capabilities as real optionsCapabilities as real options
pubsonline.informs.org [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

Why does financial sector growth crowd out real economic growth?Why does financial sector growth crowd out real economic growth?
papers.ssrn.com [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

Banking in the Theory of FinanceBanking in the Theory of Finance
www.sciencedirect.com [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …

Inflation, financial markets and long-run real activityInflation, financial markets and long-run real activity
www.sciencedirect.com [PDF]
What capital allocation role can China's stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency …


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