If a person's nominal income increases by 5% while the price level increases by 2%, then that person's real income:
A) Increases by 3%
B) Increases by 5%
C) Decreases by 7%
D) Decreases by 2%

Question

Quizplus · Accepted Answer

Real income is calculated by adjusting nominal income for changes in the price level. If nominal income increases by 5% and the price level increases by 2%, the real income increases by the difference, which is 3%.

If a Person's Nominal Income Increases by 5% While the Price