Oh boy…running a deficit, are we? That means more money is going out than is coming in. For a person, this isn’t so great, but for a country, it may or may not be okay, depending on the country’s economic stability, and whom you ask.
A nominal deficit, as opposed to the real deficit, refers to the dollar amount of the deficit. This is an important distinction, especially if there are inflationary effects ruffling everyone’s feathers. While the real deficit reflects real value, the nominal deficit changes with inflation.
Say the grand nation, Cornucopiapocalypse, is running a deficit. They decide to print money because they don’t know hyperinflation is a thing. Hyperinflation hits...which means that, while they still owe other countries the same real value as before, they owe the other countries more nominally, since each unit of their cornu-currency is worth less than it was before. So the nominal deficit rose, the but the real deficit stayed cool as a cucumber.
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Finance: What is Nominal Rate?32 Views
finance a la shmoop. what is the nominal rate?
hmm well a nominal rate is the named rate of interest on a bond. here's a bond
Eastern Airlines famously bankrupt a zillion years ago. but what's key here is [bond shown]
the nominal rate on the face of the bond right here. that .you see that 11 and 3/4
percent thing? that's the nominal rate the named rate of interest on the bond.
but when the bond was sold it was actually somewhat better than lukewarm
or almost hot offering and it sold for a hundred five cents on the dollar or a
five percent premium to the nominal rate. so investors did not in fact receive the [woman holds bond]
nominal rate because they paid slightly more than the thousand dollars our value
of the bond. they paid a thousand fifty. so instead they received eleven point
seven five divided by 1.05 or about eleven point two percent in interest.
that was the real return they got. the 11 and three-quarters percent? yeah that's [equation shown]
the nominal. rate the named rate and the performance of the bond well, it was not
phenomenal. [graph shows bankruptcy]
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