For a person to keep his real income steady at a certain level from one year to the next, his nominal income must:
A) Rise if the price index falls
B) Stay the same as the price index rises
C) Fall if the price index rises
D) Rise as fast as the price index

Question

Quizplus · Accepted Answer

Nominal income must rise at the same rate as the price index to keep the real income constant. This means that if prices are increasing (as indicated by a rising price index), nominal income must likewise increase to maintain the same purchasing power.

For a Person to Keep His Real Income Steady at a Certain