If a Person's Nominal Income Increases by 5% While the Price

question 1

Multiple Choice

If a person's nominal income increases by 5% while the price level increases by 2%, then that person's real income:

• A) Increases by 3%
• B) Increases by 5%
• C) Decreases by 7%
• D) Decreases by 2%

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Definitions:

Depreciable Asset

An asset that loses value over time due to wear and tear or obsolescence and can have its cost spread out over its useful life for accounting purposes.

Proceeds

The amount of money received from a transaction, sale, or event.

Gain

The increase in the economic value or benefit that an entity receives, usually from the sale of assets or from other transactions exceeding the costs or expenses associated with it.

Straight-Line Method

A method of calculating depreciation of an asset which assumes the asset will lose an equal amount of value each year over its useful life.