Ask Question
5 January, 16:42

In the year 1 consumer Price Index was 120 and the average nominal income was $30,000. In year 2, the Consumer Price Index was 125 and the average nominal level of income was $32,000. What happened to real income from year 1 to year 2?

+2
Answers (1)
  1. 5 January, 17:06
    0
    The real income increased by $600

    Explanation:

    Data provided in the question:

    Consumer Price Index in year 1 = 120

    Consumer Price Index in year 2 = 125

    Average nominal income in year 1 = $30,000

    Average nominal income in year 2 = $32,000

    Now,

    We know

    Real income = [ (Nominal income : CPI) ] * 100

    Thus,

    Real income in year 1 = [ ($30,000 : 120) ] * 100

    = $25,000

    Real income in year 2 = [ ($32,000 : 125) ] * 100

    = $25,600

    Therefore,

    The change in real income from year 1 to year 2

    = Real income in year 2 - Real income in year 1

    = $25,600 - $25,000

    = $600

    The positive value means an increase

    Hence,

    The real income increased by $600
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “In the year 1 consumer Price Index was 120 and the average nominal income was $30,000. In year 2, the Consumer Price Index was 125 and the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers