Economics
Real Income
Real income refers to the amount of goods and services that can be purchased with a person's income after adjusting for inflation. It is a measure of the purchasing power of an individual's income. Real income is important in understanding the standard of living of individuals and households.
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5 Key excerpts on "Real Income"
eBook - PDF- Irving Fisher(Author)
- 2020(Publication Date)
- De Gruyter(Publisher)
S EC. 7] INCOME 113 goes to the opposite extreme and leaves money income out of account altogether. Having found money income insufficient for their purposes, economists have conceived of Real Income. But by making Real Income consist of enjoyable elements, they have excluded money income altogether. Some of them more or less avowedly retain both concepts, but they do not show how to coordinate them nor how to include them both under a more general income-concept. In their minds the two seem to stand totally dis-connected, except that, in a partial and incomplete way, Real Income is thought of as that for which money income is spent. § 7 The ordinary concepts of income fail to conform to any consistent scheme whatever. In consequence, among other needless distinctions, are those which have been drawn between social and individual income. Social income has usually been conceived as the net product of society, — not in the sense of the net difference between services and disservices, but in a sense which includes commodities. No consistent method of reckoning this net product has been furnished. It is clear that we cannot include all products. Some are only too evidently new capital, such as newly constructed railways, steam-ships, tunnels, bridges, and buildings and would not be included by most persons in social income. Others must certainly be omitted to avoid duplication in our reckoning. If we were to include the wheat crop of the farmer, the flour of the miller, and the bread of the baker, we would be counting the same thing three times over, — once for each of three successive processes. Some economists have sought to avoid this repetition, either by excluding the pro-duction and consumption of raw materials, or, if these are included, by not including the whole value of the finished product, but only the increment of value over that of the raw materials, i
eBook - PDF- Alan Reynolds(Author)
- 2006(Publication Date)
- Greenwood(Publisher)
It dilutes the average if their incomes are com- bined with full-time, full-year workers. What does ‘‘family’’ mean? In some studies a family can mean just one person. In other studies a family can mean anyone filing an individual income-tax return, which might be four people in one family (my eldest granddaughter filed a tax return at age 5) or it might be a law firm, hedge fund, or bank. What does ‘‘real’’ income mean? To convert nominal income or wages into Real Income or wages in different year we need to divide today’s dollar figure by some price index. The consumer price index (CPI-U) is notorious for overstating in- flation and therefore understating real gains in income or wealth. What does the choice of years mean? 1979 was a cyclical peak followed by three years of inflationary recession; 2002 was the first year after a recession and terrorist attack. Any weakness in income between those dates was partly cyclical rather than a secular trend, and concentrated in 1980–1982 rather than later. Even the seemingly simple task of comparing average Real Income over a period of years turns out to involve several complex concepts and measure- ment problems. It is not as easy as it looks. As one of my teachers used to say, ‘‘If economics is that simple why do we pay professors to teach it to our kids?’’ Getting the numbers right is not a matter of trivial nitpicking. Consider the issue of which price index to use when estimating the growth of Real Income or wages over a long period of years. The familiar consumer price index from the Bureau of Labor Statistics (BLS) appears to show the cost of living rising by 222 percent from 1977 to 2005. But the same index has been updated to today’s higher statistical standards starting with 1977, and that updated con- sumer price index (CPI-U-RS) shows only a 184 percent rise through 2005. 1 The BLS has also been developing an even better ‘‘chain-weighted’’ CPI since 2000, but it is too new to be of much use.
eBook - PDFMeasuring and Promoting Wellbeing
How Important is Economic Growth?
- Andrew Podger, Dennis Trewin, Andrew Podger, Dennis Trewin(Authors)
- 2014(Publication Date)
- ANU Press(Publisher)
Third, even if the terms of every transaction were known and were included in the calculations, there would be no 'correct' way of aggregating those transactions in order to establish, without ambiguity, the average Real Income of one country compared with another. Finally, and most importantly, there is no agreement, and there is no prospect of agreement, about the concept of 'income' of which it is always better to have more rather than less. Depending on the context, our interest might be in the measure of output that is aggregated in the system of national accounts or in alternative measures. For example, our interest might be in measures of output that take account of items not identified in the national accounts; such as unpaid and voluntary work, changes in stocks of natural resources, or in measures which seek to comprehend less tangible aspects of wellbeing or the quality of life. Our interest might be in a measure of income per some unit; such as per hour worked, per capita, per employed person, or some augmented measure of labour, 12 or per unit of some composite of factor inputs. Alternatively, our interest might be in the income of individuals in particular circumstances; for example, the median wage and salary earner, the retired or the unemployed, or the income of particular types of households (such as single income or single parent households). 12 Such as one that allows for differences in education, skills and/or experience.
eBook - PDF- John E. Marthinsen(Author)
- 2020(Publication Date)
- De Gruyter(Publisher)
Because base-year prices are common to all periods, the only way real GDP can change is if out-put changes. This chapter represents an essential first step toward understanding and measuring inflation. It is also a valuable starting point for distinguishing between real and nominal economic variables. In Chapter 5, “ Inflation: Who Wins, and Who Loses, ” we will broaden our analysis of real and nominal economic varia-bles to determine how (and whether) inflation hurts or helps individuals, busi-nesses, governments, and the nation as a whole. Key Points – Inflation and Deflation – Inflation is a sustained increase in the average price level. – Inflation occurs when the percent weighted average of prices increases. – Price stability typically means a low, nonvolatile inflation rate. – Price Indexes – The GDP Price Index is the broadest measure of prices because it covers all final goods and services (except imports) produced over a period. – The Producer Price Index (PPI) measures price changes at the wholesale level and excludes imports. – The Personal Consumption Expenditure Index (PCE) measures price changes asso-ciated with the consumption component of GDP. Unlike the CPI, the PCE does not measure price changes for a fixed market basket of goods and services. – The Consumer Price Index (CPI) is the weighted average change in prices for a market basket of goods and services (including imports) purchased by the typical consumer. – Nominal versus real GDP – Nominal GDP is equal to the sum of all final goods and services produced during a period times their market prices. Key Points 89 – Real GDP is equal to nominal GDP after adjusting for the effects of price changes (i.e., inflation or deflation). – The GDP Price Index is used to convert nominal GDP into real GDP. – The CPI often ignores quality changes, new products, and the substitution of low-priced products for high-priced ones.
eBook - PDF- William Boyes, Michael Melvin(Authors)
- 2015(Publication Date)
- Cengage Learning EMEA(Publisher)
Source: Bureau of Economic Analysis, third quarter 2013; www.bea.gov personal income (PI) National income plus income currently received but not earned, minus income currently earned but not received. transfer payment Income transferred by the government from a citizen who is earning income to another citizen. 92 Chapter 5 National Income Accounting Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. needs rather than paid out to stockholders. Another is social security (FICA) taxes, which are deducted from workers’ paychecks. 5-1b-5 Disposable Personal Income Disposable personal income (DPI) equals per-sonal income minus personal taxes—income taxes, excise and real estate taxes on personal property, and other personal taxes. DPI is the income that individuals have at their disposal for spending or saving. The sum of consumption spending plus saving must equal dispos-able personal income. 5-2 Nominal and Real Measures The GDP is the market value of all final goods and services produced within a country in a year. Value is measured in money terms, so the U.S. GDP is reported in dollars, the German GDP in euro, the Mexican GDP in pesos, and so on. Market value is the product of two elements: the money price and the quantity produced. 5-2a Nominal and Real GDP Nominal GDP measures output in terms of its current dollar value. Real GDP is adjusted for changing price levels. In 1980, the U.S. GDP was $2,790 billion; in 2013, it was $16,857 billion— an increase of 504 percent.
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