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Nominal and Real Income in a Real Dollar Store

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  • Sheldon H. Stein

Abstract

In this paper, the distinction between nominal and real income is highlighted by positing the existence of an imaginary “real dollar store.” In this store, all items are sold at a price of one dollar in the base year and the price of each is indexed to the cost of living. Hence, such concepts as “real income” and “real rate of interest” can be illustrated in physical terms in a way that lacks the ambiguity that comes with the term “dollar of the base year.”

Suggested Citation

  • Sheldon H. Stein, 2012. "Nominal and Real Income in a Real Dollar Store," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 12(1), pages 38-42, Fall.
  • Handle: RePEc:mts:jrnlee:v:12:y:2012:i:1:p:38-42
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    File URL: http://frank.mtsu.edu/~jee/2012/5_MS111_pp38to42.pdf
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    References listed on IDEAS

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    1. Boulding, Kenneth E, 1969. "Economics as a Moral Science," American Economic Review, American Economic Association, vol. 59(1), pages 1-12, March.
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    More about this item

    Keywords

    real income; price level; real interest rate;

    JEL classification:

    • A21 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Pre-college
    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate

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