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Given Normal Income, How Can We Find Real Income? Explain. - CBSE (Arts) Class 12 - Economics

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Question

Given normal income, how can we find real income? Explain.

Solution

Real income can be calculated by applying the following formula:

Real Income =  `"Nominal Income"/"Price Index of Current Year" xx   "Price Index of Base Year" `

Consider Price Index of base year as 100

When nominal income is given, we can convert into real income with the of GDP deflator

Real income = `"Nominal Income"/"GDP deflator" xx 100`

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Solution Given Normal Income, How Can We Find Real Income? Explain. Concept: Methods of Calculating National Income - Income Method.
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