## Nominal and Real Values

### Dollars and Cents at Different Dates

To compare dollar amounts at different dates, we need to know the CPI on those dates. To convert the price of a good in past dollars (Year 2) to its price in current dollars (Year 1), use the following formula:

Value in Year 1 dollars = {(CPI in Year 1) ÷ (CPI in Year 2)} x Value in Year 2 dollars

Notice that in the above formula, Year 2 does not necessarily have to be greater than Year 1. Thus, the formula works for any two years.(17)

### Nominal and Real Values in Macroeconomics

The difference between nominal and real variables is important in macroeconomics. In macroeconomics, we generally use the GDP deflator rather than the CPI as our measure of the price level because we are dealing with economy totals, of which consumer spending is just one part.

The calculation of the real wage is similar to the calculation of real GDP, only using a different set of variables. (17)

Real wage = (Nominal wage) ÷ (CPI)

Real GDP = (nominal GDP) ÷ (GDP deflator)

### Nominal Wage Rate and Real Wage Rate

The nominal wage rate is the average hourly wage rate measured in current dollars and the real wage rate is the average hourly wage rate measured in dollars of a given reference base year.