Final answer:
Austin's real income increased by approximately 2% in 2010 when his nominal income increased by 3% and the price level rose by 1%, after adjusting for inflation.
Step-by-step explanation:
In 2010, if Austin's nominal income increased by 3%, while the price level rose by 1%, Austin's real income would have effectively increased by approximately 2%. To determine the change in real income, we adjust the nominal income increase by the inflation rate. Since the real income reflects the purchasing power, not merely the actual dollar amount, it's important to remove the effects of inflation to see the actual increase in economic wellbeing.
Real income is calculated by using the following formula:
Real Income Change = Nominal Income Change - Inflation Rate
In this case:
Real Income Change = 3% - 1% = 2%
This means that Austin's income, after adjusting for inflation, can buy 2% more goods and services than the previous year, demonstrating an increase in his economic wellbeing.