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Homework answers / question archive / In 2018 Dave's salary was $50,000
In 2018 Dave's salary was $50,000.
In 2019 his salary was 2% higher, $51,000.
If inflation between 2018 and 2019 was 3%, which of the following is true?
Group of answer choices
Dave's nominal and real income increased from 2018 to 2019.
Dave's nominal and real income decreased from 2018 to 2019.
Dave's nominal income increased but his real income decreased from 2018 to 2019.
Dave's real income increased but his nominal income decreased from 2018 to 2019.
Ans: Dave's nominal income increased but his real income decreased from 2018 to 2019.
Nominal income is the income without taking inflation into account. Therefore there is 2% increase in nominal income between 2018 and 2019.
Real income on the other hand takes inflation into account.
Increase in real income = Increase in nominal income - increase in inflation = 2% - 3% = - 1% (which is negative)
Therefore, the real income has actually decreased from 2018 to 2019.
