Recently a labour union argued that the standard of living of its members was falling.A critic of the union argued that this could not possibly be true,because the union had been acquiring increases in the nominal incomes of its members through collective bargaining.Is the critic correct?
A)Yes, because when you have an increase in nominal income, your standard of living automatically increases.
B)No, because real income may fall if price increases are proportionally greater than the increases in nominal income.
C)No, because real income may fall if price increases are proportionally less than the increases in nominal income.
D)Yes, because real income may fall if price increases are proportionally less than the increases in nominal income.
E)Yes, because real income may fall if price increases are proportionally greater than the increases in nominal income.

Question

Quizplus · Accepted Answer

The critic is correct because the standard of living depends on the real income, which takes into account the effect of inflation on purchasing power. If prices increase at a greater rate than the nominal income, the real income will actually fall, leading to a lower standard of living even if the nominal income has increased.

Recently a Labour Union Argued That the Standard of Living