In economics, briefly explain what is nominal and real income

April 10th, 2011 Comments off
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Nominal income or money income  is income expressed as a number of monetary units like money wagesWhereasReal income is what the money income can actually buy on the market. Real income is the actual purchasing power reflecting the goods and services that it can command.

Illustration:

Say the monthly household’s monthly income is $4,000 which is the nominal income or money income. After one year, when prices have risen, the money income remains at $4,000 but the real income will have fallen because the $4,000 can now buy less goods and services.  What it means is that money income or nominal income has remained the same over the one-year period , the real income has fallen.

 

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Financial Accounting

 
 

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