Recently a labour union argued that the standard of living of its members was falling.A critic of the union argued that this could not possibly be true because the union had been acquiring significant increases in the nominal incomes of its members through collective bargaining.Is the critic correct?
A)Yes, because when you have a large nominal income your standard of living automatically increases.
B)No, because real income may fall if price increases are more proportionately than the increase in nominal income.
C)No, because real income may fall if price increases are less proportionately than the increases in nominal income.
D)Yes, because real income may fall if price increases are less proportionately than the increases in nominal income.

Question

Quizplus · Accepted Answer

The critic is correct because even if nominal incomes have increased, if the prices of goods and services have increased by a larger proportion, then the real buying power of those incomes may have decreased. Therefore, the standard of living may have fallen even if nominal incomes have risen.

Recently a Labour Union Argued That the Standard of Living