Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:

Name: Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:
Brand: Quizplus
Rating: 4.9 (49 reviews)

Question

Quizplus · Accepted Answer

Real income = Nominal income / (1 + inflation rate) = (5% increase) / (1 + 3%) = 1.94% increase. Therefore, your real income increased by 2 percent (rounded to the nearest whole number).

Suppose Your Nominal Income This Year Is 5 Percent Higher