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Real income is income of individuals or nations after adjusting for inflation .. individuals. individuals. nations. nations. inflation. inflation. Real. real versus nominal value ( economics ). It is calculated by dividing nominal income by the price level .. calculated. calculate. nominal. Real versus nominal value ( economics ). price level. price level. nominal income. nominal income target. Real variables such as real income and real GDP are variables that are measured in physical units , while nominal variables such as nominal income and nominal GDP are measured in monetary units .. nominal. Real versus nominal value ( economics ). Real. real versus nominal value ( economics ). real GDP. real GDP. variables. Variable ( mathematics ). measured. measured. physical units. physical units. nominal variables. Real versus nominal value ( economics ). nominal income. nominal income target. nominal GDP. nominal GDP. Therefore , real income is a more useful indicator of well-being since it measures the amount of goods and services that can be purchased with the income .. well-being. well-being. amount. amount. goods and services. goods and services. purchased. Purchasing. According to the classical dichotomy theory , real variables and nominal variables are separate in the long run , so they are not influenced by each other .. nominal. Real versus nominal value ( economics ). variables. Variable ( mathematics ). nominal variables. Real versus nominal value ( economics ). classical dichotomy theory. classical dichotomy. long run. long run. In other words , if the nominal starting income was 100 and there was 10 % inflation -LRB- general rise in prices , for example , what cost 10 now costs 11 -RRB- , then with nominal income of still 100 , one can buy 10 % less ; so if nominal income was not adjusted for inflation -LRB- did not rise by 10 % -RRB- , real income has dropped 10 % .. inflation. inflation. nominal. Real versus nominal value ( economics ). nominal income. nominal income target. But if the classical dichotomy holds , nominal income will eventually go up by 10 % , leaving real income unchanged from its original value .. nominal. Real versus nominal value ( economics ). nominal income. nominal income target. Category  : Household income