A worker has a nominal income of $10,000 in the year 2000, and the CPI for 2000 was 100. If the worker's nominal income remained unchanged in 2001 but the real income increased to $10,050, then we can conclude that the economy experienced _____ percent between 2000 and 2001.
A) inflation of 5
B) deflation of 5
C) inflation of 0.5
D) deflation of 0.5

Question

Quizplus · Accepted Answer

The real income increased while the nominal income remained the same, indicating that the purchasing power of the money increased, which happens during deflation. The increase from $10,000 to $10,050 is a 0.5% increase in real terms, suggesting a 0.5% deflation rate.

A Worker Has a Nominal Income of $10,000 in the Year