Final answer:
Values measured using current prices are called nominal values, which are not adjusted for inflation. Real values are the same economic statistics adjusted for inflation, offering a more accurate picture. Adjusting nominal values to real values involves using a price index and a base year.
Step-by-step explanation:
Values measured using current prices are called nominal values. When examining economic statistics, distinguishing between nominal and real values is essential, as this determines whether the data has been distorted by inflation. Nominal values are measured in terms of actual prices that exist at the time, without any adjustments for inflation. On the other hand, real values refer to the same economic statistic after it has been adjusted for the effects of inflation, which provides a more accurate reflection of economic performance.
To convert nominal economic data into real values, economists use a price index and an arbitrarily chosen base year. This process re-evaluates past prices to reflect the purchasing power of money in the base year, allowing for a comparison of economic data across different time periods without the distortion of inflation.