Real Income


DEFINITION of 'Real Income'

The income of an individual or group after taking into consideration the effects of inflation on purchasing power. For example, if you received a 2% salary rise over the previous year and inflation for the year was 1%, then your real income only rose 1%. Conversely, if you received a 2% raise in salary and inflation stood at 3%, then your real income would have shrunk 1%.

Also known as "real wages".


In other words, 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 (i.e. food, gas, rent, utilities, interest, etc) this year compared to last year, and your annual income stayed the same, then your real income has actually decreased by $2,000.

  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Real Value

    Nominal value adjusted for inflation. Real value is obtained ...
  4. Deflation

    A general decline in prices, often caused by a reduction in the ...
  5. Autonomous Consumption

    The minimum level of consumption that would still exist even ...
  6. Inferior Good

    A type of good for which demand declines as the level of income ...
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