Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will
A) fall by about 20 percent.
B) fall by about 2 percent.
C) rise by about 15 percent.
D) rise by about 25 percent.

Question

Quizplus · Accepted Answer

Real income is calculated by adjusting nominal income for inflation. The nominal income increased by 20% (from $10,000 to $12,000), while the CPI increased by 5% (from 100 to 105). The real income increase is approximately 15% after accounting for inflation.

Suppose That a Person's Nominal Income Rises from $10,000 to $12,000