Suppose that at the start of this year you got a salary increase of 10 percent from your employer.The prices of the goods and services you typically purchase increase 10 percent during the year.At the end of the year you have experienced on balance:
A) Higher real income and higher nominal income.
B) Higher real income but lower nominal income.
C) No change in nominal income.
D) No change in real income.

Question

Quizplus · Accepted Answer

Real income is adjusted for inflation, meaning it reflects the purchasing power of income. If both your salary and the prices of goods and services increase by the same percentage (10% in this case), your nominal income (the actual amount of money you receive) increases, but your real income (the amount of goods and services you can buy with your income) stays the same because the price increase offsets the salary increase.

Suppose That at the Start of This Year You Got