Your grandfather tells you that he earned $7,000/year in his first job in 1961.You earn $35,000/year in your first job in 2013.You know that average prices have risen steadily since 1961.You earn
A)5 times as much as your grandfather in terms of real income.
B)more than 5 times as much as your grandfather in terms of real income.
C)less than 5 times as much as your grandfather in terms of real income.
D)less than 5 times as much as your grandfather in terms of nominal income.

Question

Quizplus · Accepted Answer

When adjusting for inflation, the purchasing power of $7,000 in 1961 is significantly higher than $7,000 today. Therefore, $35,000 in 2013 does not equate to 5 times the real income of $7,000 in 1961.

Your Grandfather Tells You That He Earned $7,000/year in His