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Give nominal income, how can we find real income ? Explain. |
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Answer» Given nominal income other than base year we can find real income by eliminating changes in price index. The effect of change in prices on the nominal income of current year can be eliminated in the following way : Real income = Nominal Income/Price index x 100 Price index plays the role of deflator deflating current price estimates into constant price estimate. Nominal income is the income one gets in money terms and real income is the amount of goods and services a person can buy from the nominal income. Nominal income is calculated with current year price and real income is calculated with base year' price. Real income is calculated by dividing nominal income by the price level. For example: If Real income is Rs.400 and Price Index is 105, Nominal Income will be Real Income = (Nominal Income,/Price Index of the Current Year) x 100 400= (Nominal Income/105) x 100 nominal income= Rs.420 |
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