What Is the Difference Between Nominal Approach and Real Approach

question 94

Essay

What is the difference between nominal approach and real approach to incorporating inflation into the net present value method?

---

Definitions:

Moral Hazard

The risk that one party to a contract can change their behavior to the detriment of another after the contract has been concluded, particularly where one party bears the cost of those actions.

Uncertainty

A state of having limited knowledge where it is impossible to exactly describe existing states or future outcomes.

Incentive Compensation

A form of payment designed to motivate and reward employees for exceeding specific performance goals.

Compensation

Payment or benefits provided to employees in exchange for their labor or services, including salaries, wages, and benefits packages.