Suppose the inflation rate is 5 percent, and Randolph receives a wage increase of 5 percent.How will Randolph's nominal and real incomes be affected?

Question

Quizplus · Accepted Answer

Randolph's nominal income will increase by 5 percent due to the wage increase, but his real income will stay the same because the inflation rate is also 5 percent. Real income indicates the purchasing power of money, so even though Randolph's nominal income has increased, the same amount of money can buy the same amount of goods and services as before. Therefore, the real value of his income remains unchanged.

Suppose the Inflation Rate Is 5 Percent, and Randolph Receives