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What is meant by homogeneous shear?

What is meant by the real side of the economy, and what is meant by the nominal side of the economy?

  • If some economist knows please share your knowledge. Plus will the financial crisis affect the real or nominal side of the economy? or both? and how?

  • Answer:

    They're not really different sides of the economy. Real growth, real GDP, and the like try to adjust the numbers to account for monetary inflation and changes in the relative cost of, say, a Chevy versus a tomato so that you can compare 2009 with 1989 and say how much bigger or smaller the economy is in some concrete way. (Tomatoes are pretty cheap today, all things considered. Chevies cost about the same.) Nominal growth, etc., don't try to adjust the numbers this way. If prices, wages, and money supply all doubled over the next year, nominal GDP would pretty much double as well. Real GDP, though, would be nearly the same as it was, since real growth is nowhere near 100%. You'd have more cash in your pocket, but it wouldn't buy as much. The financial crisis is a whole 'nother kettle of fish. Money is an input. If the cost of money goes up, as it will when there is uncertainty or dislocation in the financial markets, then the cost of production goes up as well, which creates upward pressure on prices without an increase in demand that would support a higher price, so output shrinks. So yeah, it affects the economy. You'd expect real growth to slow, and nominal growth too unless government inflates the effective money supply with increased central bank lending.

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Several different but related distinctions: 1. Actual goods as opposed to monetary equivalents. When oil prices jump by a factor of 2 but producers are pumping the same amount of oil, real output hasn't changed, but the nominal output, as measured in money, has gone up by a factor of 2. For oil, getting the real measurement is easy, but for other goods, it is much harder. People tend not to count the number and complexity of haircuts, or number and size of potholes fixed, etc. 2. For aggregate numbers, real refers to inflation adjusted, while nominal means in current dollars. For example, both nominal and real GDP have grown in the past 100 years, but at quite different rates: http://faculty.hacc.edu/jhuang/econdata/htm/rn_gdp/rn_gdp_showcase.htm http://www.measuringworth.org/usgdp/ 3. Then there is the distinction between the "real" economy: producing goods and services and the financial economy. http://voices.washingtonpost.com/achenblog/2008/09/the_real_economy.html It used to be that these were almost completely independent, but no longer. That means a financial crisis now affects both, to varying degrees. One reason is that the modern economy is built on debt - everyone borrows working capital, etc. When banks are not willing to lend, we have a credit crunch that affects the real economy directly: http://en.wikipedia.org/wiki/Credit_crunch

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