Real and Nominal Income

Real and Nominal Income - Real and Nominal Income (Y): An...

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Real and Nominal Income (Y): An important analytical distinction is to be made between real and nominal values of the national income. By definition national income is the total value of all goods and services at market price. Thus every year all productive activities are evaluated at current market prices for this purpose. This is however the nominal value of the national income. It is not ordinarily comparable with the national income value of the last or earlier years. This is because of the fact that market prices contain an element of inflation and to that extent actual or real changes in the national income are not accurately recorded by the nominal value. Therefore before any comparison is attempted between the national income estimates of two or more years it is necessary to make the prices uniform and price index applicable to adjust all such values. The process is called conversion of nominal values into real value or conversion of national income from current to constant prices. This process can be applied to all national aggregates
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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Real and Nominal Income - Real and Nominal Income (Y): An...

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