Question

Suppose your nominal income rose by 5.3 percent and the price level rose by 3.8 percent in some year. Instructions: Round your answers to 1 decimal place. a. By what percentage would your real income (approximately) increase? b. If your nominal income rose by 2.8 percent and your real income rose by 1.1 percent in some year, what must have been the (approximate) rate of inflation?

Answer 1

Your real purchasing power is determined by the increase in the nominal amount of money and the inflation rate. The first one increases purchasing power. The second one decreases it.

Step-by-step explanation:

Giving the following information:

Your real purchasing power is determined by the increase in the nominal amount of money and the inflation rate. The first one increases purchasing power. The second one decreases it.

1) Suppose your nominal income rose by 5.3 percent and the price level rose by 3.8 percent in some years.

Increase in income= 5.3 - 3.8= 1.5%

2) If your nominal income rose by 2.8 percent and your real income rose by 1.1 percent in some year

Increase in income= nominal income - price level increase

1.1= 2.8 - x

x= 1.7%

Increase in income= 2.8 - 1.7= 1.1%