If the Inflation Rate Is 5 Percent and You Receive

question 89

Multiple Choice

If the inflation rate is 5 percent and you receive a wage increase of 5 percent,

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

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Definitions:

Perfectly Competitive

A market structure characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information, resulting in firms being price takers.

Price

The amount of money required to purchase a good or service; the value that must be exchanged to acquire a specific product.

Short-run Industry Supply

The total quantity of goods that producers in an industry are willing and able to sell at different prices in a short period, without changing production capacity.

Perfectly Competitive Market

A theoretical market structure characterized by infinite buyers and sellers, homogenous products, and no barriers to entry or exit.