If the Inflation Rate in an Economy Is 5 Percent

question 92

Multiple Choice

If the inflation rate in an economy is 5 percent and the income earned by workers increases by 5 percent,then _____.

• A)nominal income declines and real income increases
• B)both nominal income and real income increase by 5 percent
• C)nominal income increases and real income declines
• D)both nominal income and real income decrease by 5 percent
• E)nominal income increases by 5 percent and real income is unchanged

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Definitions:

Balance Sheet

A report detailing a business's assets, liabilities, and shareholders' equity at a particular date, serving as an overview of its financial situation.

Permanent Account

An account that is not closed at the end of the accounting period and whose balances are carried forward into the next period.

Allowance for Doubtful Accounts

An accounting method used to estimate the portion of accounts receivable that is expected not to be collected.

Net Realizable Value

The amount (Accounts Receivable – Allowance for Doubtful Accounts) that is expected to be collected.