Question

1. What is real income and how is it calculated?

Answer 1

Meaning of real income -

It is the income of one person or county after modifying the inflation, sometimes it also reads as real wage at a time when we refer it from the earing or income of one person.

• When the real income increases, the purchasing power of an individual also increases.
• If the rate of inflation fluctuates then real income also goes up and down.  

How real income is calculated -

RI = NI ÷CPI

WHEREAS,

• RI stands for Real income
• NI stands for Nominal income
• CPI stands for ( as a decimal ) or divided by hundred.

* Nominal income - it scales the income at the current price while keeping in mind that no modification would be fone for the effect of inflation.