Question

what is meant by real shocks and nominal shocks? what does "real" and "nominal" itself mean in economics?

Answer 1

Answer - The real shocks may be described as the sudden or the unpredictable shocks like market crash , drought etc which affect the real variables such as the Long run real GDP.

Nominal shocks are the type of shocks that do not affect the real variables but only the nominal variables such as the price level. This can be the change in demand etc . It is also referred to as long run neutrality of money. It does not affect the real GDP.

In economics , real is something in which all the changes occuring in the economy have been considered. Such as the real GDP considers the impact of inflation.

Nominal here means something which is constant or unaffected by the other variable or factors. Such as the GDP calculated for the current year taking current year prices.