Question

definition of the following please :)

INFLATION AFFECTS INCOME

1) IF THE PRICE LEVEL RISES FASTER THAN THE INCREASE IN NOMINAL INCOME

2) IF NOMINAL INCOME RISES FASTER THAN THE INCREASE IN THE PRICE LEVEL

3) IF NOMINAL INCOME STAYS THE SAME AND THE PRICE LEVEL RISES

4) IF NOMINAL INCOME RISES AND THE PRICE LEVEL STAYS THE SAME

Answer 1

INFLATION AFFECTS INCOME IF THE PRICE LEVEL RISES FASTER THAN THE INCREASE IN NOMINAL INCOME . In other words inflation is a silient killer . Suppose thet we have 100 dollars in the pocket , and we can buy 10 dosas outoff it , now Nominal income increases by 10 % , but out dosa price rises by 20 % . In such case Now we have nominal income in our hand to be 110 , and now one dosa cost us around $12 . Hence in such case we can now buy only 9 Dosas ( South indian food) Hence here inflation effects the income .

Hence (A) part is a correct answer