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2 March, 04:32

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

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  1. 2 March, 06:59
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    r=2.9%

    Explanation:;

    The person real income is the income which has been adjusted for inflation and can be calculated using the below formula:

    (1+r) (1+i) = (1+n)

    r = real income increase%=?

    n=nominal income increase%=5%

    i=price level increase%=2%

    (1+r) (1+2%) = (1+5%)

    1+r = (1+5%) / (1+2%)

    1+r=1.029

    r=1.029-1

    r=0.029

    r=0.029*100=2.9%
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