Questions: Question 12 - Ch 11 Quiz - Connect Ch 11 Quiz Saved 12 In which of the following cases would real income rise? 25 points 8 01:35:47 Multiple Choice Nominal income rises by 8 percent, and the price level rises by 10 percent. Nominal income rises by 2 percent, and the price level remains unchanged. Nominal income falls by 4 percent, and the price level falls by 2 percent Real income will rise in all of these cases

The answer is the second one: Nominal income rises by 2 percent, and the price level remains unchanged.

Explanation for each option:

1. Nominal income rises by 8 percent, and the price level rises by 10 percent:

   • Real income is calculated by adjusting nominal income for changes in the price level (inflation). If nominal income rises by 8% but the price level rises by 10%, the real income actually decreases because the increase in prices outpaces the increase in nominal income.

2. Nominal income rises by 2 percent, and the price level remains unchanged:

   • In this case, since the price level remains unchanged, the entire 2% increase in nominal income translates directly into a 2% increase in real income. Therefore, real income rises.

3. Nominal income falls by 4 percent, and the price level falls by 2 percent:

   • Here, nominal income decreases by 4%, but the price level also decreases by 2%. The real income would still decrease because the reduction in nominal income is greater than the reduction in the price level.

4. Real income will rise in all of these cases:

   • This statement is incorrect because, as explained above, real income does not rise in all the given scenarios.

Summary: The correct answer is the second one: Nominal income rises by 2 percent, and the price level remains unchanged.