Listen to a Business English Dialogue About Nominal income
Leah: Hey Jesse, have you heard about nominal income before?
Jesse: Hi Leah, yes, nominal income refers to the total amount of money earned by an individual or a company before adjusting for inflation.
Leah: That’s correct, Jesse. It’s essentially the income stated in current dollars without considering any changes in purchasing power over time.
Jesse: Right, Leah. Nominal income is often used in economic analysis and financial reporting to show the raw amount of money earned or received.
Leah: Exactly, Jesse. However, it’s important to distinguish between nominal income and real income, which accounts for inflation and provides a more accurate measure of purchasing power.
Jesse: Absolutely, Leah. Real income adjusts nominal income for changes in the price level, allowing for comparisons of purchasing power over different time periods.
Leah: That’s correct, Jesse. So while nominal income may increase over time due to factors like raises or higher sales revenue, real income reflects whether those increases are enough to maintain the same standard of living.
Jesse: Right, Leah. For example, if nominal income increases by 5% but inflation is also 5%, real income remains unchanged, indicating that purchasing power has stayed the same.
Leah: Exactly, Jesse. Understanding the difference between nominal and real income is crucial for making informed financial decisions and assessing changes in economic well-being.
Jesse: Absolutely, Leah. It allows individuals and businesses to accurately gauge their financial health and plan for the future based on their actual purchasing power rather than just the raw dollar amount earned.