Real Income

Real income is the amount of goods and services a person can buy with their income, adjusting for inflation. Unlike nominal income, which is the dollar amount earned, real income reflects the true purchasing power over time. For example, if your salary increases by 5%, but prices rise by 5% as well, your real income stays the same, meaning your ability to buy things hasn't improved. It helps measure whether people’s standard of living is actually improving or declining, after accounting for changes in prices.