ch 27 - reported/nominal income

Shenaz_Keshwani@mercer.com
Thu, 22 Apr 1999 13:57:38 -0500

I am having trouble understanding the following passage from chapter
27 on page 782 of the fifth edition of Brealey and Myers text book.
Any comments or explanation will be greatly appreciated.

(effects of inflation)
Reported income is also affected in two ways. First, income is
overstated because depreciation is understated. Second, nominal
income is understated because appreciation of asset values due to
inflation is ignored. (A calculation of real, ie, inflation adjusted
economic income would not include the second effect.)

Question is: What is meant by "reported income" and "nominal income"?
Are they the same? And if they are the same, will the overstatement
and understatement off set each other?

Thanks,

Shenaz

PS: Thanks to all who responded to my questions on chapter 17 and
chapter 21. It helped me in understanding the material.