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Nominal MoneyNominal money, in economics, is the quantity of money measured in a particular currency, and is directly proportional to the price level. This means, among other things, that if the price level rises by 10%, people hold 10% more money than before. (ceteris paribus) For example, if you hold $20 to buy pizza, and the price level increases by 10%, you essentially increse you're money holding by $2, totaling $22. Real money is the quantity of money measured as a constant (eg: the value of the dollar in 1997), and relates to the above as follows: Nominal money = Price level * Real money. Hence Real Money = Nominal money/Price Level, and is the quantity of money measured in terms of what it will buy. Thus, your $22 at the new price level will buy you the same amount of goods and is the same quantity of real money as your $20 at the original price level.
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