A decline in real income
A) can occur only if there is a decline in nominal income
B) can occur only if there is an increase in the price level
C) can occur only if there is either a decline in nominal income or an increase in the price level
D) cannot occur if there is either an increase in nominal wages or a decline in the price level
E) can occur only if there is a decline in the price level

Question

Quizplus · Accepted Answer

Real income is adjusted for inflation, so a decline in real income can occur if there is either a decline in nominal income (without a matching decrease in prices) or an increase in the price level (without a matching increase in nominal income). Therefore, both of these factors contribute to a decline in real income, making choice C the correct answer. None of the other choices fully capture the various factors that can lead to a decline in real income.

A Decline in Real Income