If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary,then your
A)Real income falls,but your nominal income remains unchanged.
B)Real and nominal income both fall.
C)Real income remains unchanged,but your nominal income rises.
D)Real and nominal income both rise.

Question

Quizplus · Accepted Answer

Deflation is a decrease in the general price level of goods and services. If deflation is 0.5 percent per year, then the prices of goods and services will decrease by 0.5 percent each year. If you receive a 1 percent decrease in your salary, then your nominal income will decrease by 1 percent. However, your real income will decrease by more than 1 percent, because the prices of goods and services will also be decreasing.

If Deflation Is 0