Real income (deflated income)

Real income (deflated income)

1. Real Income (Deflated Income) NADEEM UDDIN ASSOCIATE PROFESSOR OF STATISTICS https://www.slideshare.net/NadeemUddin17 https://nadeemstats.wordpress.com/listofbooks/

2. REAL INCOME 1- It is the amount of money you have and the buying power, based on the rate of inflation. 2- If the inflation rate is high then the real income goes down and purchasing power decreases. 3- If the inflation rate is low then the real income goes up and purchasing power increases. The formula of real income is  

3. Example-1 Find Real Income (Deflated Income). Year Money Income Rs . Consumer Price Index 2000 = 100 2000 25000 100 2005 27000 120 2010 31000 160 2015 36000 200 Solution: Year Money Income Rs . Consumer Price Index 2000 = 100 2000 25000 100 25000 2005 27000 120 22500 2010 31000 160 19375 2015 36000 200 18000 Year Consumer Price Index 2000 = 100 2000 25000 100 25000 2005 27000 120 22500 2010 31000 160 19375 2015 36000 200 18000 Comments Money income shows an increasing trend in the current income while the real income shows a decreasing trend.

4. Example-2 The per capita income in a country has increased from $500 in the year 2002 to $1000 in the year 2009. Taking base as 100 in the year 2002, the Consumer Price Index in 2009 stood at 160 . Compute real per capita income and the purchasing power of money , in the year 2009 . (b) Find the percentage increase/decrease in real income over the same period .

5. Solution: (a) YEARS Income CPI Real Income Purchasing Power 2002 500 100 $500 1 2009 1000 160 $625 0.67 (b)   Comments In this example current income increased by 100% while the real income is increased only 25%.