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ECON 1020 (99)
Lecture 53

ECON 1020 Lecture 53: Lecture 53

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University of Manitoba
ECON 1020
Ryan A.Compton

OS98 Nominal Income and Real Income: Nominal income: the number of current dollars received as wages, rent, interest, or profits Real income: the amount of goods and services nominal income can buy It is the purchasing power of nominal income, or income adjusted for inflation Real income = nominal income price index X 100 Inflation need not alter an economys overall real income It is evident from the above equation that real income will remain the same when nominal income rises at the same rate as the price index But when inflation occurs, not everyones nominal income rises at the same pace as the price level Therein lies the potential for redistribution of real income from some to others If the change in the price level differs from the change in a persons nominal income, his or her real income will be affected How much real income will change: change in real income = change in nominal income change in price Expectations: The redistribution effects of inflation depend upon whether or not it is expected Unanticipated inflation: increases in the price level that occur at a rate greater than expected o Does more harm than anticipated Anticipated inflation: increases in the price level that occur at the expected rate Who is Hurt by Inflation?: Unanticipated inflation hurts people with: Fixed incomes People whose income is fixed see their real income fall when inflation occurs
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