If real income rises from $5 trillion to $5.3 trillion while the price level increases by 10 percent, it follows that nominal income:

Question

Quizplus · Accepted Answer

Real income adjusted for inflation indicates the purchasing power of income. A rise from $5 trillion to $5.3 trillion in real income, alongside a 10% increase in the price level, means nominal income must have increased by more than 10% to accommodate both the real income increase and the inflation. A 6% increase in real income (from $5 trillion to $5.3 trillion) plus a 10% inflation rate compounds to a 16% increase in nominal income, as nominal income reflects both the change in real income and the change in price level.

If Real Income Rises from $5 Trillion to $5