Question

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2016. You know that average prices have risen steadily since 1961. You earnA) 5 times as much as your grandfather in terms of real income.B) more than 5 times as much as your grandfather in terms of real income.C) less than 5 times as much as your grandfather in terms of real income.D) less than 5 times as much as your grandfather in terms of nominal income.

Answer 1

Answer:

C) less than 5 times as much as your grandfather in terms of real income

Explanation:

Given information

Grandfather first job earning in the year 1961 = $7,000 per year

Our first job earning in year 2016 = $35,000 per year

If we compare this two-income it would be equal because

Grandfather earnings = Our earnings

$7,000 × 5 times = $35,000

$35,000 = $35,000

And, we know that real income is the income that comes after considering the inflation so if we see the commodities price in 1961 with the commodities price in 2016 it will have a huge difference.  

So, it would be less than 5 times as your grandfather in case of the real income