Question

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit. a. Jane's nominal income and real income increased this year. b. Jane's nominal income increased this year, but her real income decreased. c. Jane's nominal income decreased this year, but her real income increased. d. Jane's nominal income and real income decreased this year.

Answer 1

The correct option is B). Jane's nominal income increased this year, but her real income decreased. The reason the nominal increased this year is because she can buy less than last year.

What is nominal and real income?

Nominal income is that income, which is not adjusted for changes in purchasing power. It is the amount of goods or services that an individual can afford with the income, owing to inflation.

The Real income of an individual or a country is income adjusted for inflation. It is an estimation of an individual's actual purchasing power in the open market after accounting for inflation.

Real income sometimes also called real wage when referring to an individual's income.

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