Question

Distinguish between nominal and real income explain why due to preserve of non monetary production ,real national income on its own control can not be treated as a true index of welfare

Answer 1

Answer:

Nominal income measures income at current prices with no adjustment for the effects of inflation e.g. if my nominal income is £40,000 in 2012 and rises by 5% in the next year, then my nominal income will rise to £42,000

When we want to measure growth in the economy we have to adjust for the effects of inflation and consider data in real terms

Real GDP measures the volume of output. An increase in real output means that AD has risen faster than the rate of inflation and therefore the economy is experiencing positive growth.