Recently, a labor 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 receiving increases in
The nominal incomes of its members through collective bargaining. Is the critic correct?

Question

Quizplus · Accepted Answer

The critic is not correct because even though the union may have received increases in nominal income through collective bargaining, real income may still fall if prices increase more proportionately than the increase in nominal income. It is important to distinguish between nominal income (which is the income in current dollars) and real income (which is the income adjusted for inflation). If prices increase faster than nominal income, real income will fall and therefore the standard of living may also fall.

Recently, a Labor Union Argued That the Standard of Living