Nominal income is a value for the calculation of which a pure financial expression is used, but not accountable: the price level, inflation and the purchasing power of money.
Methods for determining financial inequality
People who exist within the same society have different levels of income, therefore, occupy a different position from each other. Nominal income is an absolute monetary value.
To determine how the income is distributed, use one of the following methods:
- Statistical techniques to determine the value of the average level.
- Formation of groups depending on the size of income and comparing the average values of the extreme ones.
- The Lorentz curve, the construction of which allows us to determine the magnitude of inequality in society through a cumulative (increasing) effect.
Nominal and real income
Nominal income is the entire amount of financial resources that a person received during a certain period of time.
The concept of real income involves countingthe quantity of goods and services that the buyer can ultimately afford. This is not an absolute value, but a variable in time nominal (real) level of income through the price index. That is why the initial base period implies the coincidence of these types of income, and then the price change is calculated for a certain time period, which results in a difference between the nominal and real income in the current period.
The essence of nominal income
Typically, the nominal income is the amount of profit,which a person received or earned during his life. Here you can include all types of material assets and services purchased or produced during the same period of time.
The importance of the income received can be assessed depending on the activity and level of use. The real income is:
- from funds received from doing business;
- from wages;
- from scholarship payments;
- from social benefits;
- from a pension;
- from dividends received from securities;
- from other income received, for example, from the sale of real estate or rural land.
Based on the size of the profit, you can talk aboutthe well-being of each individual citizen and how much he can satisfy the whole range of his spiritual and physical needs. The magnitude of income is affected by such factors as: wages, earnings from bonds, the level of prices in the market and the meaning of its fullness.
About the sources
Nominal income grew?Anything can happen, especially if there is any fluctuation in the source. For example, salaries, profits from owning securities or the amount of rent for rented property have increased. But basically the nominal income is formed at the expense of state payments. These funds are used to cover social needs: study, medical care and various kinds of benefits.
Nominal income is a huge incentive forpart of the development of society. For example, a decent salary has a positive effect on zeal, responsibility and work discipline. If the state aid is unreasonably high, it can lead to the opposite effect - a person will quickly lose interest in his duties.
Monetary system
In terms of monetary relations, nominal incomes of the population are divided as follows:
- payment, the basis for which is a state program;
- profit from the growth of securities;
- bank loan required for building a house;
- loan to a member of the consumer community;
- lottery winnings;
- various fines or duties;
- the presence of temporarily free finance, formed as a result of the acquisition of goods on credit;
- other income derived from the sale of personal movable property.
In addition, the nominal income includes such mandatory payments as tax. These payments are the source of the formation of additional resources and the distribution of capital.
Types of income
Income of the population is monetary and in kindfunds received over a period of time. The first ones include any financial receipt: the entrepreneur's profit, employee's salary, allowance, pension, scholarship, interest, dividends, rent, as well as the amount from the sale of securities, real estate or agricultural products, etc. The budget survey of the family, conducted by state statistics, does not take into account the increase in the deposit on the passbook.
Натуральный доход – это продукция таких сфер household, as farming, livestock and poultry. In addition, this may include any products, services and other goods in kind (pieces, kg, hour) obtained from a household or garden plot, personal estate. The same category includes self-procurement of gifts of nature, intended for personal consumption (not a commodity form).
Inflation
Выше было подробно разобрано понятие «реальные nominal income ". Inflation can significantly adjust the level of profitability, because, in simple terms, money depreciates. This happens due to the rise in prices against the background of the previous level of income. Inflation is not a trivial price hike, but a long and difficult situation, regulated by the state through the use of various instruments of the economy.
The most serious consequence of inflation isredistribution of income and wealth. In this situation, there is a decrease in the purchasing power of money, which as a result causes damage to the whole society.
The decline in real income happens in the event thatif the growth of nominal income is below the rate of inflation. As a result, anyone can suffer: a person who receives a fixed income (state employee, retired person), the owner of a savings deposit, as well as a lender.
In a favorable position is:
- the entrepreneur, the price of the finished product of which is growing faster than the resource necessary for its production;
- debtor;
- a state that pays its liabilities with impaired money.
Итак, инфляционный «налог» придется «заплатить» recipients of fixed amounts, and “subsidies” will go to those whose cash incomes increase faster than inflation. The bottom line is that income and wealth are redistributed.
The procedure for calculating the real income
Практически всем известно о том, что под реальной Profit means income minus inflation. Price increases occur in respect of any products, goods, services. Statistics show that over the past 15 years there has been a 5-fold increase in prices. This can be explained with a simple example: for money, all this time lying under the mattress, you could buy 5 apples before, and now only 1.
С целью сохранения покупательной способности люди try to invest their savings in any financial instrument - deposit, currency, real estate. More advanced attract stocks, bonds and precious metals.
The nominal rate of return minus inflation is equal to the real rate of return. Its value can be both positive and negative.
On the value of bonds and coupon income
The current price of a bond is the expected cash flow, in relation to the current time period. The cash flow consists of two components: nominal coupon income and the nominal value of the bond.
The cost depends on the following circumstances:
- Consideration of cash flow in the context of the periods during which coupon income will be paid, the change of which depends on what conditions occurred during the issuance of the bond.
- The size of the market yield involves taking into account the risk inherent in such investments. The value of the required return may vary depending on the period of operation.
- Each bond has a deadline, the occurrence of which requires its cancellation.
Bonds: price and factors affecting it
The value of a bond can be influenced by various factors, namely:
- interest rate;
- the popularity and reliability of the issuer;
- period to maturity;
- circulation period.
Of course, the value of a bond has a huge impact.it has an interest rate set upon issuance, which, in turn, is influenced by: the nominal value of the bond and the yield. If an investor has alternative options for investing finances, and other conditions are equal, then the choice will fall in favor of the greatest return. So, if the amount of coupon income is 12% per annum and an alternative investment option is able to provide the same income, then the bond should be sold at a nominal price.
