A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago.

a. Her real and nominal salary have risen.

b. Her real and nominal salary have fallen.

c. Her real salary has risen and her nominal salary has fallen.

d. Her real salary has fallen and her nominal salary has risen.

Question

English

Rayan Knight

6 March, 03:51

A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago.

a. Her real and nominal salary have risen.

b. Her real and nominal salary have fallen.

c. Her real salary has risen and her nominal salary has fallen.

d. Her real salary has fallen and her nominal salary has risen.

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Answers (1)

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Jersey · Answer 1

d. Her real salary has fallen and her nominal salary has risen.

Explanation:

It is mentioned that a professor of economics gets a $100 a month raise. This is her nominal salary and not the real salary.

A nominal salary is that salary that is given by the employer for our labor and time. It is not adjusted over inflation. Inflation means there is a general increase in terms of price of various goods and services.

Whereas real salary is adjusted over inflation.

Thus when the professor monthly salary is increased by $100, she finds out that she could not buy as many goods and services as she could 12 months ago. Thus her purchasing power has declined.

Thus her nominal salary has risen whereas real salary has fallen.

Thus the correct answer is

d. Her real salary has fallen and her nominal salary has risen.