Mike made $28,000 in 2001. He did not receive a raise in 2002, so his income remained at $28,000. Between 2001 and 2002, inflation was 2.2 %. Which of the following statements is True?
A) Mike's real income stayed the same from 2001 to 2002.
B) Mike's purchasing power stayed the same from 2001 to 2002.
C) Mike's real income fell from 2001 to 2002.
D) Mike's real income increased by 2.2% from 2001 to 2002.

Question

Quizplus · Accepted Answer

Mike's real income fell from 2001 to 2002 because although his nominal income stayed the same, the inflation rate of 2.2% reduced his purchasing power, effectively decreasing his real income.

Mike Made $28,000 in 2001