Measuring the Price Level and Inflation - Deflation - Adjusting for inflation
3 important questions on Measuring the Price Level and Inflation - Deflation - Adjusting for inflation
Methods to adjust for inflating are:
- Deflating (a nominal quantity) : the process of dividing a nominal quantity by a price index (such as the CPI) to express the quantity in real terms.
- Indexing : the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index; indexing prevents the purchasing power of the nominal quantity from being eroded by inflation.
A nominal quantity is:
A quantity that is measured in terms of its current euro or pound value.
The nominal interest rate is:
Also known as the market interest rate, is the annual percentage increase in the nominal value of a financial asset.
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