Nominal and real value so when you talk about value we tend to think about the price of the goods. As our concept of what some things are worth, how much we pay for them and for the purpose of this lesson we are going to use a candy bar as our Harshi bar as a methodology of our goal and so let’s say we have one Harshi bar. So in 2014 this Hershey bar will cost us $ 1. At that time the price was five cents. So if I told you that in 1901 it was cheaper or more expensive, it cost five cents and today it costs one dollar.
But if I ask you what’s better, it’s a little trickier. The nominal value is only detailed in terms of how much the sticker costs. In a bigger picture so we have all the basket-like items put together to create what we call baskets, so our Hershey’s bar and our Reese ‘cup have another chocolate bar in the same basket. Let’s look at the average cost of a chocolate bar up to 1990 and 1900 and look at the average cost of a chocolate bar in 2014. From that data we can say that the price of candy has increased by twenty five per cent. It can now be priced 25 times higher and the price index is now 25 times the nominal real value.
How do we get real value now? Let’s use this 1900 chocolate value as our starting point. So to know how much our chocolates are worth this 2014 according to these 1900 prices or 1900 economy, we have to divide that 1 dollar by changing the value of the baskets in those candy bars, which gives us 4 cents. Despite the price, the nominal value of the chocolate bar 2014 was 95% higher than the chocolate bar in 1900. Its true value in terms of the overall candy bar sector in terms of the overall economy is Lex. That means we have less than 5 cents worth of $ 1.