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.
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