What Is Difference Between Real Income And Nominal Income?

Question

What Is Difference Between Real Income And Nominal Income?

3 Answers

Answer Question

Answer 1

Nominal income is the actual dollar amount that the person receives as income and has not been adjusted for the inflation rate. Inflation is the increase in the general price level which means that if your income is the same and the price level goes up then you will be able to buy lesser in that income because now the products will be expensive. For example if a person is given a salary of $ 2500 then it generally refers to the nominal income as it does not account for inflation. Real income is adjusted for this increase in prices and represents a realistic picture and shows how much a person is left with when the increase in prices is deducted from nominal income. It shows the purchasing power of the person by relating the income to the goods or services that can bought with it instead of just the dollar amount.
Real Income = Nominal Income - Inflation

Answer 2

The difference between the real income and nominal income is that real income takes into account the effect of inflation whereas nominal income does not take into account the effect of inflation. Real income is calculated after subtracting inflation from the nominal income.

Real income=nominal income-inflation

Real income is a good measure of analysis as it represents more realistic income figure which can be used for purchase of goods in the prevailing inflationary environment.

Answer 3

The nominal income is refer to the actual amount which a person received in perticular time of period may be in month or weekly which doest not have the effet of inflation and which is fixed in any curcumtances , for e g if there is raise in the prise of the commodities it leads the prise to the inflation but there will be no effect on the Nominal income holder as it is fixed,however in the Real income scenario the inflation amount will effect the real income as it is to be deducted from the Bominal income.hence
Real income = Nominal income - inflation ,
Therefore we can say that real Income is the good measure to know the actual purchasing power of the economy and good aggregate to calculate the National Income.