Difference Between Real Income and Nominal Income
Real income indicates earnings that an entity or an individual makes after considering inflation rates. It is also known as real wage when denoting the inflation-adjusted earnings of an individual. Nominal income represents earnings that are not adjusted with subsequent changes in inflation rates.
This upcoming segment summarises the differences between real income and nominal income and if you are keen to know about it, keep reading.
Real Income Vs Nominal Income: Key Differences
| 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
Is real income evaluated in terms of physical units?
Yes, individuals need to evaluate real earnings in physical units and nominal earnings in monetary terms.
Is real income more useful in understanding the concept of the national economy than nominal earnings?
Yes, real income is more comprehensive than nominal earnings for understanding the national economy.