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Difference Between Real Income and Nominal Income

Real Income Vs Nominal Income: Key Differences

Take a look at the differences between real and nominal earnings:

Real Income

Nominal Income

Real income is the inflation-adjusted earnings of an entity, individual or nation.

Nominal income does not consider inflation rates while calculating an entity's or individual's earnings.

Real wage represents the purchasing power of an individual

A nominal wage indicates only the earnings of an individual

It varies over the years

It can remain fixed over the years

Real earnings are a valuable indicator of an individual's well being as it assesses the number of goods and services bought from that income.

Nominal earnings only denote an individual's current earnings that are not adjusted to the changes in inflation rates. Hence, it does not represent the well-being of an individual.

Thus, go through the differences between real income and nominal income carefully. Moreover, individuals must keep track of the same to have a better perception of their purchasing power.

Frequently Asked Questions