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

Question

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

Answer 1

I will be happy to critique your thinking.

Answer 2

increases by 2%

Answer 3

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

Answer 4

Didn't prices rise more than income?

Answer 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

Answer 6

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

Answer 7

so does that mean it decreases by 2%

Answer 8

Right.