Assume the CPI increases from 110 to 121,and Manny's nominal income increases from $100,000 to $120,000 over the same period.Manny's real income has
A)Increased by approximately 12 percent.
B)Increased by approximately 9 percent.
C)Decreased by approximately 8 percent.
D)Remained the same.

Question

Quizplus · Accepted Answer

Manny's real income change is calculated by adjusting his nominal income change for inflation. The CPI increase from 110 to 121 represents a 10% inflation rate ([121-110]/110*100). Manny's nominal income increased from $100,000 to $120,000, which is a 20% increase. To find the real income change, we adjust the nominal increase by the inflation rate: 20% - 10% = 10%. However, to accurately reflect the real increase in terms of purchasing power, we need to calculate the real increase over the original amount, considering inflation. The real income increase is approximately 9% when considering the effect of inflation on purchasing power.

Assume the CPI Increases from 110 to 121,and Manny's Nominal