Question

In: Economics

Explain how an increase in your nominal income and a decrease in your real income might...

Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously. Who loses from inflation? Who gains? (10) (answer in your own words)

Solutions

Expert Solution

answer :

Nominal income : nominal income is the monetary value of income means income is expressed in money.

Real income : real income is purchasing power of our income or currency. It is an income adjusted to inflation.

If nominal income increases or wages/salary of a person increases but the prices of goods and services also increases more than the nominal income it will lead to decrease in real income because increase in prices leads to decrease in purchasing power.

So if nominal income increases by 5% and prices rise 10 % than it will decrease the real income. As due to increase in prices the purchasing power of money has decreased.

Loses from inflation:

  • Creditors
  • Salaried persons (as their salaries are slow to adjust with price rise)
  • Fixed income group
  • People who invest in debentures, securities, bonds etc.(due to fixed interest rate)

Gains from inflation :

  • Debtors
  • Wage earners (only those wage earners gain whose wages adjust according to price rise.)
  • Share holders or stocks holder
  • Businessmen
  • Farmers gain due to increasing prices

*hope the answer will help you. please give feedback thank you


Related Solutions

8) a. An increase in your nominal income and a decrease in your real income might...
8) a. An increase in your nominal income and a decrease in your real income might occur simultaneously if your nominal income increases more than the cost of living increases. real income increases at the same rate as the cost of living increases. nominal income increases less than the cost of living increases. real income increases more than the cost of living increases. b. The losers from inflation are those with significant debt. incomes that increase at the rate of...
An oil price _______ is a sudden increase or decrease in the nominal or real price...
An oil price _______ is a sudden increase or decrease in the nominal or real price of oil. This is an example of a ________ -side shock. Fill in the blanks
What might cause an increase in nominal GDP? A. Increase in production only B. decrease in...
What might cause an increase in nominal GDP? A. Increase in production only B. decrease in population C. Increase in prices only D. Increase in prices or increase in quantity of production.
Explain how the increase in the supply of money affects the real and nominal interest rates.
Explain how the increase in the supply of money affects the real and nominal interest rates.
If nominal income increases, then real income
If nominal income increases, then real income a. increases if you buy only the goods included in the consumer price index (CPI) and the majority of those goods get cheaper. b. increases if the price index falls. c. increases. d. decreases. e. increases if the percent increase in price index rises by more than the percent change in nominal income.
use decrease and/or increase a. there is an increase in income and the good is an...
use decrease and/or increase a. there is an increase in income and the good is an inferior good. the equilibrium price will _______ and the equilibrium quantity will _______. b. buyers expect the price of a good to fall in the future. the equilibrium price will _______ and the equilibrium quantity will _______. draw a market that is initially in equilibrium, labelling the initial equilibrium price and equilibrium quantity. then show what happens in each market based on the given...
How can a chosen depreciation method increase or decrease income?
How can a chosen depreciation method increase or decrease income?
William's nominal income in 2010 was $72,500. How much was his real income if 2010 was...
William's nominal income in 2010 was $72,500. How much was his real income if 2010 was the base year?
1.How to explain the simultaneous increase in income inequality and decrease in poverty rate? 2.Briefly describe...
1.How to explain the simultaneous increase in income inequality and decrease in poverty rate? 2.Briefly describe why share cropping contract often observed in developing countries agriculture is inefficient.
How does Cost of Goods Sold affect Income. Does it increase or decrease income and by...
How does Cost of Goods Sold affect Income. Does it increase or decrease income and by how much?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT