Real income is the income of individuals or nations after adjusting for inflation. Income, refers to consumption opportunity gained by an entity within a specified time frame which is generally expressed in monetary terms In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time It is calculated by subtracting inflation from the nominal income. Real variables, such as real income, real GDP, and real interest rate are variables that are measured in physical units, while nominal variables such as nominal income, nominal GDP, and nominal interest rate are measured in monetary units. Real GDP is a macroeconomic measure of the size of an economy adjusted for price changes and inflation The " real interest rate " is approximately the Nominal interest rate minus the Inflation rate (see Fisher equation and below for exact equation In finance and economics nominal interest rate or nominal rate of interest refers to the rate of Interest before adjustment for inflation (in contrast with the Therefore, real income is a more useful indicator of well-being, since it is based on the amount of goods and services that can be purchased with the income. Quality of life is the degree of well-being felt by an individual or group of people According to the classical dichotomy theory, real variables and nominal variables are separate in the long-run, meaning they are not influenced by each other. In Macroeconomics, the classical dichotomy refers to the idea that real and nominal variables can be analyzed separately In economic models the long-run time frame assumes no fixed Factors of production. In other words if the nominal starting income was 100 and there was a 10% inflation (general rise in prices eg: what cost 10 now costs 11) rate. So now with 100 you can buy less and if your income is not adjusted by inflation (did not rise by 10%),your real income has dropped 10%
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