One family earned an income of $28,000 in 1995. Over the next five years, their income increased by 15 percent, while the CPI increased by 12 percent. After five years, this family's nominal income ________, and their real income ________.

Question

Quizplus · Accepted Answer

The family's nominal income increased, as it was 15 percent higher in 2000. The family's real income also increased because their percentage income gains were greater than the percentage price level increases. In other words, their nominal income grew faster than average prices increasing the purchasing power or real income of the family.

One Family Earned an Income of $28,000 in 1995