If a family's income increases by 5% at the same time that inflation is 3.5%, then the:
A) Family will need to spend more in order to maintain its standard of living
B) Family will need to spend less in order to maintain its standard of living
C) Family's standard of living is not affected by inflation
D) Family will need to spend the same amount in order to maintain its standard of living

Question

Quizplus · Accepted Answer

The family's income increases by 5%, but inflation is 3.5%. This means that the family's real income (i.e., the amount of goods and services they can buy with their income) has increased by 1.5%. Therefore, the family will need to spend more in order to maintain its standard of living.

If a Family's Income Increases by 5% at the Same