Appendix B. Nominal vs. Real Dollars
In financial calculations spanning time, currency value can be looked at from two different perspectives. It’s important when doing historical analysis or making financial projections to understand these two views of value.
One way to look at currency is as pieces of paper—you know, the ones in your wallet. A paper dollar today is the same piece of paper as a dollar tomorrow. These dollars are called “nominal dollars,” or “current dollars.” Their value is in the money of the day.
In nominal dollars, a McDonald’s Big Mac cost 50¢ 20 years ago and it costs $3.75 today. Nominal dollars and current prices are just the dollars that Dad took out of his wallet to buy you that Big Mac 20 years ago or the dollars that ...
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