Real income (deflated income)

1. Real Income (Deflated Income)
NADEEM UDDIN
ASSOCIATE PROFESSOR
OF STATISTICS
https://www.slideshare.net/NadeemUddin17
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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
Real Income =
current Income
C P I
𝑥 100

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
(current Income)
Rs.
Consumer Price
Index
2000 = 100
Real Income
=
current Income
C P I
𝑥 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.
(a) 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) % of increases =
625−500
500
× 100 = 25%
Comments
In this example current income increased by 100% while the
real income is increased only 25%.