When prices rise,increases in real income are greater than increases in nominal income.

Question

Quizplus · Accepted Answer

When prices rise, increases in nominal income are not adjusted for inflation and therefore do not accurately reflect changes in purchasing power. Real income, on the other hand, is adjusted for inflation and reflects the true increase in purchasing power. Therefore, increases in nominal income may be offset by inflation, resulting in a smaller increase in real income.

When Prices Rise,increases in Real Income Are Greater Than Increases