(Saigon Times Daity ngày 2-12-2002)
40. Nominal vs. Real
Analysis of economic data is an important task for economists as well as
the average person. A common misunderstanding, however, is to confuse
the nominal with the real value of such things as income and interest rates.
Nominal is defined as "in name only." Thus, the nominal meaning of a
10,000 note is 10,000 dong. But the real value, or purchasing power, can
only be understood if there is a standard by which to measure. If you know,
for example, that the price of a cup of tea is 1,000 dong, then you can see
that the real value of 10,000 dong is ten cups of tea.
Imagine for a moment that you borrow 50,000 at 10% interest for one
year. After one year you pay back the original 50,000 plus interest payment
of 5000. Although the nominal rate of interest is 10%, the real rate of
interest can only be looked at by knowing the changes in the cost of goods
over the time period (or inflation).
For simplicity, let's assume we only buy tea. If the price had stayed'
constant over the year at 1000 dong then you effectively borrowed 50 cups
of tea and pay back 55 cups. Thus, your real interest is five cups of tea.
However, if the price of tea had risen to 1100, you can see that you are
actually paying back only 50 cups of tea or the real cost of borrowing is
zero. If the price of tea had risen by less than 10%, the real rate would be
positive, but less than the nominal rate.
A simple formula to determine the real rate of interest is r = i - p*, where
i is the nominal rate of interest, r is the real rate, and p’ is the rate of
inflation. Knowing the real value is what really matters.
40. GIÁ TRỊ DANH NGHĨA SO VỚI GIÁ TRỊ THỰC
