Norma Complains That She Is Not Receiving the Full Benefit

question 88

Multiple Choice

Norma complains that she is not receiving the full benefit of her six percent raise,because inflation is two percent.You tell her that nominal incomes tend to rise with inflation,therefore

• A)she really is worse off.
• B)her real income increased eight percent.
• C)menu costs have reduced her purchasing power.
• D)she is committing the inflation fallacy.

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Definitions:

Inflation Rate

The rate at which the cost of goods and services rises within an economy over a specific period.

Nominal Interest

The rate of interest before adjustment for inflation, representing the face value of borrowed money and the income from lending investments.

Frictional Unemployment

A form of unemployment that occurs when individuals are temporarily between jobs, entering the workforce, or transitioning from one position to another.

Job Search

The process by which individuals seek to find new employment, utilizing various methods and resources to discover job opportunities.