A person whose paycheck grows at a rate of 2 during a period

A person whose paycheck grows at a rate of 2% during a period when inflation is 5% would experience: a decrease in nominal income and real income an increase in nominal income and real income. a decrease in nominal income and an increase in real income an increase in nominal income and a decrease in real income None of the above are correct.

Solution

Answer.) An increase in nominal income and a decrease in real income.

2% Increase in paycheck indicating Increase in nominal income but real income decreased by

?(Real income) = ?(nominal income) - ?inflation

Therefore real income decreased by 3% .