Definition of Real Dollars

What are "real dollars"? What is the definition of the term "real dollars"?

Yesterday we talked about "nominal dollars".

Nominal dollars are the amount of money that you paid for something in the past, without accounting for inflation.

For instance, a twelve-pack of Coca-Cola may have cost $1 in "nominal dollars" in 1965.

"Real dollars", on the other hand, account for inflation.

So, that twelve-pack of Coca-Cola that count $1 in 1965 dollars? Adjusted for inflation, it might cost you $6 or $7 today.

"Nominal dollars" = dollars of the day (say, 1965).

"Real dollars" = dollars of today

One more example - a car purchased in 1941 may have cost just $100 in the "dollars of the day" (or, nominal dollars).

However, that same purchase, when adjusted for inflation? Something in the neighborhood of $1,464, or $1,464 in "real dollars".

To recap:

Real dollars = dollars that have been adjusted for inflation.


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