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20 March, 08:25

Nominal incomes generally increase with inflation because

A. when inflation is anticipated, average nominal incomes also increase by the same percentage as the rate of inflation.

B. even anticipated inflation causes average nominal incomes to fall as prices increase.

C. when inflation is anticipated, real incomes also increase by the same percentage as inflation.

D. when inflation is unanticipated, average nominal incomes also increase by the same percentage as inflation.

Since nominal incomes increase with inflation,

A. unexpected inflation does not affect the purchasing power of the average consumer.

B. expected inflation increases the purchasing power of the average consumer.

C. expected inflation does not affect the purchasing power of the average consumer.

D. expected inflation reduces the purchasing power of the average consumer.

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Answers (1)
  1. 20 March, 08:52
    0
    The correct answer is option A.

    The correct answer is option C.

    Explanation:

    When inflation is anticipated the average nominal income will also increase by the same rate as inflation. In the process of inflation the general price level increases. it will cause an increase in production. This further causes an increase in the nominal income of the individuals.

    If inflation is expected will not affect the purchasing power of the consumer. This is because the nominal income will increase by the same rate as an increase in inflation. So the decrease in purchasing power due to increased prices will be canceled out by the increase in nominal wages. As a result, the average consumer will be unaffected.
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