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Suppose your spouse complains that their 6% raise does not keep up with the increase in...

Suppose your spouse complains that their 6% raise does not keep up with the increase in prices. Therefore their

nominal and real income increased

nominal income increased but their real income decreased

nominal and real income decreased

nominal income decreased but their real income increased
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Answer #1

The correct answer is 'Option B'.

It is given that a 6% increase in income does not keep up with the increase in prices. The nominal income is the income without adjusting for inflation and the real income is the income which is adjusted for inflation. It is calculated by dividing the nominal income by price level. So, the nominal income increases but the real income falls as the purchasing power of consumers also fall. Therefore, the correct answer is 'Option B'.

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