Question

If your income increased from $23,000 to $26,000 during a period when the rate of inflation was 4 percent, your real income after the raise was:​

a.​$23,000.

b.​$24,000.

c.​$25,000.

d.​$26,000.

Answer 1

Real income after the raise was:​ c.​$25,000

Step-by-step explanation:

Real income refers to the wages of an individual or entity after adjusting for inflation.

Real income is calculated by the following formula:

Real Income = Wages / (1 + Inflation Rate) = Income/(1 + Inflation Rate)

The income after raise was $26,000 and the rate of inflation was 4 percent. Real income after the raise = Income/(1 + Inflation Rate) = $26,000/(1+4%) = $25,000