Patricia's nominal annual income in 2009 was $60,000.If the rate of inflation is constant at 10 percent,in order to keep Patricia's real income constant,her nominal income in the year 2010 should be:

Question

Quizplus · Accepted Answer

To keep Patricia's real income constant, we need to account for the inflation rate. If the inflation rate is constant at 10 percent, it means that prices of goods and services will increase by 10 percent in 2010 compared to 2009. Hence, Patricia's purchasing power will decrease if her nominal income remains the same.

To maintain Patricia's purchasing power, her nominal income in 2010 should increase by the rate of inflation, which is 10 percent. Therefore, her nominal income in 2010 should be:

Nominal income in 2010 = Nominal income in 2009 + (Nominal income in 2009 x Inflation rate)
Nominal income in 2010 = $60,000 + ($60,000 x 0.1)
Nominal income in 2010 = $66,000

Therefore, the best choice is C) $66,000.

Patricia's Nominal Annual Income in 2009 Was $60,000