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Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct?
A) No, because real income may fall if prices increase more proportionately than the increase in nominal income.
B) Yes, because real income may fall if prices increase less proportionately than the increases in nominal income.
C) No, because real income may fall if prices increase less proportionately than the increases in nominal income.
D) Yes, because when you have a large nominal income, your standard of living automatically increases.

Respuesta :

Samawati

Answer:

) No, because real income may fall if prices increase more proportionately than the increase in nominal income.

Explanation:

Should the rate of inflation be greater than the rate of salary increment, it implies that the real income is falling. Inflation refers to the general increase in price levels. It erodes the purchasing power of money.  

Nominal income refers to income that has not been adjusted for inflation, while real income has factored in inflation. For workers to enjoy a salary rise, the rate of salary increase must exceed the rate of inflation. The workers' standards of living will fall if real income does not increase.

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