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National Income Accounting — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsNational Income Accounting2 Marks
Question
Given nominal income, how can we find real income? Explain.
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Answer

Nominal Income: When output produced in current year is valued on the basis of prices prevailing in current year.

Real Income: When output produced in current year is valued on the basis of prices prevailing in base year.

Basic difference between these concepts is price level (output considered in both these concepts belongs to same year). If nominal income is given and we have to find real income, then we can use this formula:

$\text{Real Income}=\frac{\text{Nominal Income}}{\text{Price Index}}\times100$

let us Assume:

Nominal Income = ₹ 240 Crores; Price Index (PI) = 120

$\text{Real Income}=\frac{240}{120}\times100=\text{₹ }200\text{ Crores}$

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