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Real Income

Real Income

What is 'Real Income'

Real income refers to the income of an individual or group after taking into consideration the effects of inflation on purchasing power. For example, if you receive a 2% salary increase over the previous year and inflation for the year is 1%, then your real income only increases by 1%. Conversely, if you receive a 2% raise in salary and inflation is at 3%, then your real income shrinks by 1%.

Explaining 'Real Income'

Also called real wages, real income refers to the amount of goods and services you can buy today compared to the price of the same goods and services you could have purchased in another time period. For example, if it costs you $2,000 more to purchase the same amount of goods and services (such as food, gas, rent and utilities) this year compared to last year, and your annual income is the same, then your real income has actually decreased by $2,000.

How Real Income Relates to the Consumer Price Index

As real income measures the purchasing power of an individual's wages, analysts often compare it to the Consumer Price Index (CPI). The CPI measures the average cost of a basket of goods including food and beverages, education, recreation, clothing, transportation, and medical care. In the United States, the Bureau of Labor Statics publishes CPI numbers monthly and annually.

How to Calculate Real Income and Purchasing Power

Real income generally compares the purchasing power of income from one year to the cost of goods in another year, and real income can also help you compare wages from two different years, taking inflation or changes to the CPI into account. To compare wages from two different time periods, take the wage from one period and multiply it by the CPI of the other period. Then, divide the product by the CPI from the original time period.


Further Reading

Higher education, real income and real investment in China: evidence from Granger causality testsHigher education, real income and real investment in China: evidence from Granger causality tests
www.tandfonline.com [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …

Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modelling techniquesEnergy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modelling techniques
www.sciencedirect.com [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …

The impact of real income on insurance premiums: Evidence from panel dataThe impact of real income on insurance premiums: Evidence from panel data
www.sciencedirect.com [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …

Financial development, trade and growth triangle: the case of IndiaFinancial development, trade and growth triangle: the case of India
www.emerald.com [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …

Money does matter! Evidence from increasing real income and life satisfaction in East Germany following reunificationMoney does matter! Evidence from increasing real income and life satisfaction in East Germany following reunification
pubs.aeaweb.org [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …

A multivariate cointegrated modelling approach in testing temporal causality between energy consumption, real income and prices with an application to two Asian …A multivariate cointegrated modelling approach in testing temporal causality between energy consumption, real income and prices with an application to two Asian …
www.tandfonline.com [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …

Money, income, prices, and interest ratesMoney, income, prices, and interest rates
www.jstor.org [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …

The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in TurkeyThe long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey
www.sciencedirect.com [PDF]
… Education Economics … real exports had no direct effect on real income in Taiwan, real exports had an indirect effect on promoting real income through causing … For the two decades up to the Asian financial crisis in 1997, economic growth in China was 9.5% per annum; after the …


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WCAG 2.0

Section 508