Real Income Vs Nominal Income
Distinguish Between Real National Income And Money National Income

Nominal income is the actual dollar amount that the person receives as income and has not been adjusted for the inflation rate. Inflation is the increase in the general price level which means that if your income is the same and the price level goes up then you will be able to buy lesser in that income because now the products will be expensive. For example if a person is given a salary of $ 2500 then it generally refers to the nominal income as it does not account for inflation. Real income is adjusted for this increase in prices and represents a realistic picture and shows how much a person is left with when the increase in prices is deducted from nominal income. It shows the purchasing power of the person by relating the income to the goods or services that can bought with it instead of just the dollar amount.
Real Income = Nominal Income - Inflation

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The difference between the real flows and money flows can be explained further with an illustration. Out of three sectors of an economy—household, firm and government—let us for sake of simplicity consider the first two sectors, viz., household and firm. Hard money loans are asset based and will be a short term loan of 6-12 months, 12%-18% interest rate, and 2-3 points in fees. The Soft money loans are borrower based and will be long term loans of 20-30 months, 3%-5% interest rates, with 0-1 points in fees. Just like how it isn’t easy to find the best real estate deal, finding the best loan.

Some of the differences between factor income and transfer income are as follows:

The difference between the two is whether or not the income (payment) received is for rendering productive service.

Payment received in exchange for rendering productive service is factor income whereas the one received without providing any service (or good) in return is transfer income. Mind national income includes only factor incomes and not transfer incomes.

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For further clarification, the two concepts are compared below:

Factor Payment (Income):

1. It comprises rent, wages, interest and profit.

2. It is received in return for rendering productive service.

3. It is an earned income (earning concept).

4. It is bilateral payment.

Distinguish between real national income and money national income

5. It is included in national income.

Transfer Payment (Income):

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Real Income Vs Nominal Income

1. It comprises gifts, subsidies, donations, scholarships, etc.

2. It is received without providing any good or service in return.

3. It is an unearned income (receipt concept).

Distinguish Between Real National Income And Money National Income

4. It is unilateral payment.

5. It is not included in national income.

Real Income Vs Nominal Income

Distinguish Between Real National Income And Money National Income

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Distinguish Between Real Income And Money Income