Real income is a measure of the actual purchasing power of your money income in the current year, after an adjustment for changes in prices since a selected base year.

If your money income increases more than the increase in consumer prices, then your real income will increase. If the situation is reversed, with consumer prices increasing more than your money income, your real income figure will have dropped.

This measure is used to compare the relative economic prosperity of an individual at two distinct points in time. Without using real income it is meaningless to make any comparison as the effect of fluctuations in the price levels of consumer goods isn't taken into account.

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