When the price of a product rises faster than the inflation rate,
A)Nominal incomes of the consumers of that product fall.
B)Users of that product have higher real incomes than people who do not consume the product.
C)Nominal incomes of the consumers of that product rise.
D)Real incomes of the consumers of that product fall.

Question

Quizplus · Accepted Answer

If the price of a product rises faster than the inflation rate, it means that its real price is increasing, and therefore, the purchasing power of the consumers' nominal incomes is falling. Consequently, the real incomes of the consumers of that product fall, as they need to spend more of their income to purchase the same quantity.

When the Price of a Product Rises Faster Than the Inflation