AN INCREASE IN NOMINAL INCOME WITHOUT INCREASE IN PRICE WILL RESULT TO

• A. increased real income ✓
• B. increased GDP
• C. decreased real income
• D. decreased GNP

The answer to the question is: A. increased real income

An increase in nominal income without an increase in price will result in increased real income. This is because nominal income refers to the amount of money received by an individual or entity, while real income takes into account the purchasing power of that income. When nominal income increases without a corresponding increase in prices, the purchasing power of the income also increases, leading to higher real income.

The relationship between nominal and real income is influenced by changes in the price level. When prices remain constant and nominal income increases, individuals can purchase more goods and services with their income, resulting in an increase in real income. This phenomenon is captured by the concept of purchasing power, which measures the quantity of goods and services that can be purchased with a given amount of money.

In economic terms, real income is a measure of an individual’s or a nation’s purchasing power adjusted for changes in price levels. It provides a more accurate reflection of the standard of living and economic well-being than nominal income alone. Therefore, an increase in nominal income without a corresponding increase in prices leads to an increase in real income, benefiting individuals and contributing to overall economic growth.