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Distinguish between 'nominal income' and 'real income'. Explain why due to the presence of non-monetary production, real national income on its own cannot be treated as a true index of welfare. |
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Answer» SOLUTION :Nominal income is what ONE gets in money terms. Real income is the amount of GOODS and service one can BUY from the nominal income. Non-monetary production means OUTPUT not obtained through the market, it consists of self-consumed output etc. Such output though should be included is left out of national income due to non-availability of data. But this output contributes to welfare. Leaving it out underestimates national income and thus economic welfare. |
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