Nominal values are not adjusted for inflation, and real values are adjusted for inflation. Let's consider nominal values and real values in the context of interest rates. The nominal interest rate is unadjusted for inflation, and the real interest rate is adjusted for inflation. Here are a couple hypothetical examples of the money you earn when you lend someone $10,000 at a 10% interest rate when the inflation rate is 5%:

1) Nominal, not-inflation adjusted, earnings: $1,000.00.

2) Real, inflation-adjusted, earnings: $500.

In the above example, why are the nominal earnings higher than the real earnings? How does an increase in inflation affect the real value of money?