Yoko signs a contract to produce music for 10 years. Each year she will make $1,

Question

Yoko signs a contract to produce music for 10 years. Each year she will make $1,000,000. During this time, CPI falls from 265 to 250, from this which statement is most accurate?

Mulitple Choice

a) Yoko's real income has not changed.

b) Yoko's real income has increased slightly

c) Yoko's nominal income has increased slightly

d) Yoko's nominal income has decreased slightly

a) Yoko's real income has not changed.

b) Yoko's real income has increased slightly

c) Yoko's nominal income has increased slightly

d) Yoko's nominal income has decreased slightly

Explanation / Answer

b) Yoko's real income has increased slightly

as the CPI decrease , that means there is deflation or decline in pricing levels, so which means real income will increase as you can buy more with the same level of income

Formula

Real income = nominal - inflation

as inflation here is deflation, so it will add to nominal income, so real income will increase

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