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4 July, 07:24

Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will

a) rise by about 4 percent.

b) rise by about 1 percent.

c) remain constant.

d) fall by about 1 percent.

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Answers (1)
  1. 4 July, 08:38
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    b) rise by about 1 percent

    Explanation:

    Given that a person's nominal income rises by 5 percent and the price level rises from 125 to 130.

    Percentage increase in price level = (130 - 125) / 125

    = 5/125

    = 1/25 = 4%

    Difference between rise in the person's nominal income and rise in price level

    = 5% - 4%

    = 1%

    Hence the right option is b) rise by about 1 percent.
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