Real income

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Real income is the income of individuals or nations after adjusting for inflation. It is calculated by dividing nominal income by the price level. Real variables such as real income and real GDP are variables that are measured in physical units, while nominal variables such as nominal income and nominal GDP are measured in monetary units. Therefore, real income is a more useful indicator of well-being since it measures the amount of goods and services that can be purchased with the income. Growth of real income is related to real gross national income per capita growth.

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According to the classical dichotomy theory, real variables and nominal variables are separate in the long run, so they are not influenced by each other. In other words, if the nominal starting income was 100 and there was 10% inflation (general rise in prices, for example, what cost 10 now costs 11), then with nominal income of still 100, one can buy roughly 9% less; so if nominal income was not adjusted for inflation (did not rise by 10%), real income has dropped by approximately 9%. [1] But if the classical dichotomy holds, nominal income will eventually go up by 10%, leaving real income unchanged from its original value.

Real gross national income per capita by country

The real gross national income (GNI) per capita in constant 2015 USD according to the World Bank is shown for last available year: [2]

See also

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References

  1. ↑ Kagan, Julia. "Real Income". Investopedia. Retrieved 2019-03-12.
  2. ↑ "GNI per capita (constant 2015 US$), World Bank national accounts data, and OECD National Accounts data files, World Bank Group, accessed August 2024".
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