If nominal income increases,then:
A) real income increases.
B) real income increases if the price index falls.
C) real income increases if the percent increase in price index rises by more the percent change in nominal income.
D) real income increases if you buy only the goods included in the consumer price index (CPI) and the majority of those goods get cheaper.
E) real income decreases.

Question

Quizplus · Accepted Answer

Nominal income refers to the amount of money earned without adjusting for inflation, while real income takes into account the impact of inflation on purchasing power. If the price index falls, indicating a decrease in the general level of prices, then an increase in nominal income will lead to an increase in real income because the same amount of money can now buy more goods and services. Option A is not necessarily true because real income depends on the rate of inflation, which is not mentioned in the question. Option C does not make sense because the percent increase in the price index cannot rise more than the nominal income, as it is the basis for calculating the price index. Option D is also not applicable because the consumer price index includes a range of goods and services, and their prices may not all decrease at the same rate. Option E is incorrect because an increase in nominal income means that people have more money to spend, which typically leads to an increase in purchasing power, barring extreme inflation or other factors that may affect the stability of the economy.

If Nominal Income Increases,then