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If a person's nominal income increases by 8% while the price level increases by 10%, the person's real income:-

a) increases by 2%, b) increases by 18%, c) decreases by 18%, d) decreases by 2%.

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8 answers
  1. I will be happy to critique your thinking.

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    bobpursley
  2. increases by 2%

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  3. Think about it again. If the person's income increases less than the price level, how can the person's real income INCREASE??

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  4. Didn't prices rise more than income?

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    bobpursley
  5. i'm not understanding this one, so for the real income am I suppose to add the nominal and price level so that it increases to 18 or what? please help I am not understanding

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  6. When prices rise more than income, then your real income decreases.

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  7. so does that mean it decreases by 2%

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  8. Right.

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