Question

if your rent increases from $1000 to 1100 over a period of one year and your income rises from $6000 to 7000 your nominal income has

Answer 1

Answer :- Nominal income will increase and Real income will also increase.

Explanation :- In the given question, Nominal income as well as Real income both increases. Income rises by 16.66 % whereas rent expense rises by just 10.00 %.

i). Rise in income = (7000 - 6000) / 6000

= 1000 / 6000

= 0.1666 i.e., 16.66 %

ii). Rise in rent expense = (1100 - 1000) / 1000

= 100 / 1000

= 0.10 i.e., 10.00 %

From the above calculation, it is evident that the income increase percent is higher than the expense increase percent, accordingly, real income is high as price increase (rental expense rise) is in control i.e., easily compensated by the increased income from $ 6000 to $ 7000.