Question

If your nominal income rose by 5.3 percent and the price level rose by 3.8 percent in some year, by what percentage would your real income (approximately) increase? Instruction: Round your answer to one decimal place. % If your nominal income rose by 2.8 percent and your real income rose by 1.1 percent in some year, what must have been the (approximate) rate of inflation? Instruction: Round your answer to one decimal place. %

Answer 1

Answer:

1. Increase in real income percentage = 1.5%

2. Rate of inflation = 1.7%

Explanation:

For computing the percentage of how much real income would increase, we have to apply the formulas which are shown below:

The increase in real income percentage  would be equal to

= increase in nominal income percentage - increase in price level percentage

= 5.3% - 3.8%

= 1.5%

And, the rate of inflation equals to

Nominal income - the rate of inflation = Real income

2.8% - rate of inflation = 1.1%

So, the rate of inflation = 1.7%