TeachMeFinance.com - explain real
real -- Adjusted to remove the effects of inflation . Real output represents the
quantity, rather than the dollar value, of goods and services produced. Real income represents
the power to purchase real output. Real data at the finest level of disaggregation are constructed
by dividing the corresponding nominal data, such as spending or wage rates, by a price index.
Real aggregates, such as real GDP, are constructed by a procedure that allows the real growth
of the aggregate to reflect the real growth of its components, appropriately weighted by the importance
of the components. A real interest rate is a nominal interest rate adjusted for expected inflation;
it is often approximated by subtracting
an estimate of the expected inflation rate from the nominal interest rate.
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