question_answer

Given nominal income, how can we find real income? Explain.

Or

Which among the following are final goods and which are intermediate goods? Given reasons.

(a) Milk purchased by a tea stall

(b) Bus purchased by a school

(c) Juice purchased by a student from the school canteen

Answer:

Real income can be calculated by applying the following formula:

Real Income = \[\frac{\text{Nominal}\,\,\text{Income}}{\text{Price}\,\,\text{Index}\,\,\text{of}\,\,\text{current}\,\,\text{year}}\times \,\,\text{Price}\,\,\text{Index}\,\,\text{of}\,\,\text{Base}\,\,\text{year}\]

Consider price index of base year as 100

When nominal income is given, we can convert it into real income with the help of GDP deflator.

\[\therefore \] \[\,\,\text{Real}\,\,\text{Income=}\frac{\text{Nominal}\,\,\text{Income}}{\text{PDP}\,\,\text{deflator}}\times \,\text{100}\]

Or

(i) It is a intermediate good decause it is used by producer during production process that is making tea and nor for final consumption.

(ii) It is a final good as, it is purchased by school for final consumption.

(iii) It is a final good as, it is purchased by a student for final consumption.