One family earned an income of $28,000 in 2000.Over the next five years,their income increased by 15%,while the consumer price index (CPI)increased by 12%.After five years,this family's nominal income ________ and their real income ________.

Question

Quizplus · Accepted Answer

15% increase on original income of $28,000 = $4,200 increase
Nominal income after 5 years = $28,000 + $4,200 = $32,200
12% increase in CPI means prices increased by 12%
Adjusted for inflation, real income after 5 years = 1.15/1.12*28,000= $28,929.46
Therefore, nominal income increased by $4,200 and real income increased from $28,000 to $28,929.46, so the correct choice is D, nominal and real income both increased.

One Family Earned an Income of $28,000 in 2000