AP Macroeconomics Question 324: Answer and Explanation

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Question: 324

7. If the consumer price index (CPI) increases by 2 percent and your nominal income increases by 8 percent, your real income has approximately

  • A. increased by 4 percent.
  • B. decreased by 4 percent.
  • C. increased by 6 percent.
  • D. decreased by 6 percent.
  • E. increased by 10 percent.

Correct Answer: C


C-The percentage change in real income is approximately equal to the percentage change in nominal income minus the percentage change in the price level.