Suppose you compare your income this year and last year and find that your nominal income...
- Suppose you compare your income this year and last year and find that your nominal income fell but your real income rose. How could this have happened?
Homework Answers
It will happen if the actual income in hand without adjusting for the inflation decreased and the actual inflation as compared to last year also decreased.
For example, income last year was $100 and inflation was 10%. Then the real income was $90 only. This year the income in hand is decrease to $95 i.e. the nominal income decreased by $5. But the inflation also decreased by 8% and new inflation rate is 2%. so the real income after adjusting inflation is (95 - (95 x 2 ) / 100) = $93.1. This is an increase in the real income from $90.
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Suppose you compare your income this year and last year and
find that your nominal income...
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