Question

Recently, a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been receiving increases in the nominal incomes of its members through collective bargaining. Is the critic correct?

Answer 1

The critic is not correct.

Step-by-step explanation:

The standard of living of the workers may decline even though the nominal income is increasing. This happens when inflation is increasing more than nominal income.

The increase in the price level due to inflation offsets the increase in the purchasing power due to increased nominal income. The decrease in the real income of the workers due to a decline in the purchasing power will cause their standard of living to fall.