The difference between nominal price and relative or real price (as exchange ratio) is

often made. Nominal price is the price quoted in money while relative or real price is the
exchange ratio between real goods regardless of money. The distinction is made to make
sense of inflation. When all prices are quoted in terms of money units, and the prices in
money units change more or less proportionately, the ratio of exchange may not change
much. In the extreme case, if all prices quoted in money change in the same proportion,
the relative price remains the same.

It is now becoming clear that the distinction is not useful ansssd indeed hides a major
confusion. The conventional wisdom is that proportional change in all nominal prices
does not affect real price, and hence should not affect either demand or supply and
therefore also should not affect output. The new criticism is that the crucial question is
why there is more money to pay for the same old real output. If this question is answered,
it will show that dynamically, even as the real price remains exactly the same, output in
real terms can change, just because additional money allow additional output to be
traded. The supply curve can shift such that at the old price, the new higher output is sold.
This shift if not possible without additional money.

In economics, nominal value refers to any price or value expressed in money of the day,
as opposed to real value, which adjusts for the effect of inflation. Examples include a
bundle of commodities, such as gross domestic product, and income. For a series of
nominal values in successive years, different values could be because of differences in
the price level, an index of prices. But nominal values do not specify how much of the
difference is from changes in the price level. Real values remove this ambiguity. Real
values convert the nominal values as if prices were constant in each year of the series.
Any differences in real values are then attributed to differences in quantities of the bundle
or differences in the amount of goods that the money incomes could buy in each year.
Thus, the real values index the quantities of the commodity bundle or the purchasing
power of the money incomes for each year in the series. The nominal/real value
distinction can apply not only to time-series data, as above, but to cross-section data
varying by region or householder characteristics. Nominal values are related to prices and
quantities (P and Q) and to real values by the following definitions: nominal value = P•Q
= P•real value.