income of an individual, group, or country adjusted for changes in purchasing power caused by inflation. For instance, if the cost of a market basket increases from $100 to $120 in ten years, reflecting a 20% decline in purchasing power, salaries must rise by 20% if real income is to be maintained.
income of an individual, group, or country adjusted for changes in purchasing power caused by inflation. A price index is used to determine the difference between the purchasing power of a dollar in a base year and the purchasing power now. The resulting percentage factor, applied to total income, yields the value of that income in constant dollars, termed real income. For instance, if the cost of a market basket increases from $100 to $120 in ten years, reflecting a 20% decline in purchasing power, salaries must rise by 20% if real income is to be maintained.
