A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago.
A) Her real and nominal salary have risen.
B) Her real and nominal salary have fallen.
C) Her real salary has risen and her nominal salary has fallen.
D) Her real salary has fallen and her nominal salary has risen.

Question

Quizplus · Accepted Answer

Her nominal salary has risen because she received a $100 raise. However, her real salary has fallen because the purchasing power of her salary has decreased, indicating that inflation has outpaced her nominal salary increase.

A Professor of Economics Gets a $100 a Month Raise