Asked by Shontae Stallworth on May 26, 2024
Verified
If the inflation rate in an economy is 5 percent and the income earned by workers increases by 5 percent,then _____.
A) nominal income declines and real income increases
B) both nominal income and real income increase by 5 percent
C) nominal income increases and real income declines
D) both nominal income and real income decrease by 5 percent
E) nominal income increases by 5 percent and real income is unchanged
Nominal Income
The amount of money earned in current dollars, without adjustment for inflation, affecting purchasing power over time.
Real Income
Income of individuals or nations after adjusting for inflation, reflecting the actual purchasing power.
- Assess the linkage between nominal wages, price indices, and real wages.
Verified Answer
FM
Fisayo Michael AnimashaunMay 26, 2024
Final Answer :
E
Explanation :
When the inflation rate and income earned by workers increase by the same percentage, nominal income increases by the same percentage as the inflation rate (5 percent in this case), but the real income remains unchanged. Therefore, the best choice is E, "nominal income increases by 5 percent and real income is unchanged."
Learning Objectives
- Assess the linkage between nominal wages, price indices, and real wages.