If your nominal income in 1998 is $50,000,and prices increase by 50% between 1998 and 2011,then to have the same real income,your nominal income in 2011 must be

Question

Quizplus · Accepted Answer

If prices increase by 50% between 1998 and 2011, we need to adjust our nominal income in 1998 to account for the change in prices to find out what our nominal income would need to be in 2011 to have the same purchasing power.

To do this, we can divide our nominal income in 1998 by the price level in 1998 and then multiply by the price level in 2011:

Nominal income in 2011 = Nominal income in 1998 x (Price level in 2011 / Price level in 1998)

Price level in 2011 / Price level in 1998 = 1 + 50% = 1.5

Nominal income in 2011 = $50,000 x 1.5 = $75,000

Therefore, to maintain the same real income, our nominal income in 2011 would need to be $75,000.

If Your Nominal Income in 1998 Is $50,000,and Prices Increase