<p>If there is no inflation then the two phrases would mean the same</p>

<p>But if there is positive inflation, then <em>"freezing spending in nominal terms"</em> would involve spending the same amount of money, and since prices are rising, would involve buying less.  Meanwhile <em>"freezing spending in real terms"</em> would involve spending an increased amount of money corresponding to the increase in prices, with the effect after taking price changes into account of buying the same amount.  </p>

CC BY-SA 3.0
2018-04-26T07:00:35.340Z
2018-04-26T07:00:35.340Z
Henry
<p>What does it mean in the context of a budget to “freeze spending in real terms”? And how would this differ from freezing spending in “nominal terms”? </p>

<p>I am looking to understand how this would be implemented and the broader macro relevance </p>

<macroeconomics><inflation><fiscal-policy>
Fiscal budget: spending in real vs nominal terms
user18115
# Fiscal budget: spending in real vs nominal terms

(Asked by: username_0 on 2018-04-25)

What does it mean in the context of a budget to “freeze spending in real terms”? And how would this differ from freezing spending in “nominal terms”?

I am looking to understand how this would be implemented and the broader macro relevance

**Tags:** macroeconomics, inflation, fiscal-policy


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## 1 answers

### Answer by username_1 on 2018-04-26. Score: 2

If there is no inflation then the two phrases would mean the same

But if there is positive inflation, then *"freezing spending in nominal terms"* would involve spending the same amount of money, and since prices are rising, would involve buying less. Meanwhile *"freezing spending in real terms"* would involve spending an increased amount of money corresponding to the increase in prices, with the effect after taking price changes into account of buying the same amount.


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