Nominal income is the present dollar value of a persons income. Real income is the purchasing power of a persons income Real income is the nominal income adjusted for inflation and nominal income divided by the price level.
Real income (in year A $)= National income in year B/ price index year B* price index year A
Nominal income is the present dollar value of a persons income.
Real income is the purchasing power of a persons income
Real income is the nominal income adjusted for inflation and nominal income divided by the price level.
Real income (in year A $)= National income in year B/ price index year B* price index year A
example
year B income Year B price index Year A price index
212 7.1 116.5 212/7.1*116.5= 3578.59
Stephanie Powers, "Unemployment", Winter 2012