If your rent increases from $1,000 to $1,100 over a period of one year and your income rises from $6,000 to $7,000,your nominal income has
A)Increased,but your real income has decreased.
B)Increased,and your real income has increased.
C)Decreased,and your real income has decreased.
D)Increased,but your real income has remained the same.

Question

Quizplus · Accepted Answer

Nominal income has increased from $6,000 to $7,000. So, there is an increase in nominal income. The rent also increases from $1,000 to $1,100. But, to measure the real income, we need to adjust inflation. If the inflation rate is say 2%, then we can say that the real rent has increased from $980 to $1,078, which is an increase of $98 or 10%. However, the real income has still increased from $5,880 ($6,000 - $120) to $6,922($7,000 - $78). Therefore, the answer is B, i.e. the nominal income has increased, and the real income has also increased.

If Your Rent Increases from $1,000 to $1,100 Over a Period