Your annual review is given to you at your place of employment, and you get a raise of 3 percent for the next year. On the subway home though, you read an article stating the price of homes in the area you are looking to buy will increase by 6 percent during the coming year. You determine from the article that if you buy in your favorite neighborhood
A) your purchasing power declines.
B) consumer optimum is reached.
C) your real income actually increases.
D) quantity demanded will increase.

Question

Quizplus · Accepted Answer

The increase in the price of homes in the area reduces your purchasing power, which means that you will not be able to buy as much as you would have been able to before the price increase. Therefore, your purchasing power declines.

Your Annual Review Is Given to You at Your Place