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 2016.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

Inflation has increased prices since 1961, so the purchasing power of $7,000 in 1961 was much higher than $7,000 in 2016. Therefore, $35,000 in 2016 is less than 5 times the real income of $7,000 in 1961.

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