Suppose Jack's salary increased from $100,000 to $200,000 per year between 2004 and 2014 and the price index increased from 100 to 300 during the same period.Which of the following statements best describes Jack's situation?
A)His real income and money income have both increased.
B)His real income has increased and money income has decreased.
C)His real income and money income have both decreased.
D)His real income has decreased and money income has increased.
E)His real income has remained unchanged.

Question

Quizplus · Accepted Answer

Jack's money income has doubled from $100,000 to $200,000, indicating an increase. However, the price index tripling from 100 to 300 suggests that the cost of living has also increased significantly. To maintain the same purchasing power as in 2004, Jack's salary would have needed to increase to $300,000. Since it only increased to $200,000, his real income, which is adjusted for inflation, has decreased.

Suppose Jack's Salary Increased from $100,000 to $200,000 Per Year