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4 June, 20:41

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

A) Fall about 20 percent

B) fall about 2 percent

C) Rise about 15 percent

D) Rise about 25 percent.

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  1. 4 June, 21:29
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    C) Rise about 15 percent

    Explanation:

    The computation of the increase or decrease of real income is shown below:

    Initial income equals to

    = Nominal income : Consumer price index

    = $10,000 : 100

    = 100

    If it increases, then it would be

    = Nominal income : Consumer price index

    = $12,000 : 105

    = 114.28

    So, the real income is increased from

    = 114.28 - 100

    = 14.28 approx i. e 15 percent
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