ECON 2
GDP excludes the market value of unpaid work in the home. the production of services. the production of nondurable goods. positive changes in inventories.
the market value of unpaid work in the home.
An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is
$0.10
Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = − $10 billion. What is the value of G?
$20 billion
Suppose that a country has 9 million people working full-time. It also has 1 million people who are actively seeking work but are currently unemployed, along with 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this country's unemployment rate?
10%
What annual growth rate is needed for a country to double its output in each of the following cases? a. In 7 years: b. In 35 years: c. In 70 years: d. In 140 years:
10% 2% 1% .5%
Unemployed7 Population145 Employed95 Discouraged Workers3 size of labor force
102
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is
11%
If foreigners spend $7 billion on U.S. exports in a given year and Americans spend $5 billion on imports from abroad in the same year, what is the value of U.S. net exports?
2 billion
If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is
385 billion
In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines 1-vertical 2-upward 3-horizontal 4-downward
4 and 1
Suppose the CPI was 120 last year and is 126 this year. What is this year's inflation rate? In contrast, suppose that the CPI was 120 last year and is 116 this year. What is this year's inflation rate? What term do economists use to describe this second outcome?
5% -3.3% deflation
Y1 Pop 200 mil GDP 14 tril Y2 Pop 240 mil GDP 21 Tril Growth of Real gdp from Y1 to Y2? Growth of Real gdp per capita from Y1 to Y2?
50% 25%
Unemployed7 Total Population145 Employed95 Discouraged Workers3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. The unemployment rate in Scoob is
6.9%
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? A widespread fear by consumers of an impending economic depression. A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output. A reduction in interest rates. A major increase in spending for health care by the federal government. The general expectation of coming rapid inflation. The complete disintegration of OPEC, causing oil prices to fall by one-half. A 10 percent across-the-board reduction in personal income tax rates. A sizable increase in labor productivity (with no change in nominal wages). A 12 percent increase in nominal wages (with no change in productivity). An increase in exports that exceeds an increase in imports (not due to tariffs).
AD decrease AS decrease AD increase AD increase AD increase AS increase AD increase AS increase AS decrease AD increase
Refer to the diagram, in which Qf is the full-employment output. Contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at AD0 - AD3 left to right Qf at AD2 AD0. AD3. AD1. AD2.
AD3.
Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? unexpected financial bubbles that eventually burst shocks to the money supply by the nation's central bank supply shocks caused by major innovations All of these are identified as causes of business cycle changes
All of these are identified as causes of business cycle changes
Net exports might be a negative amount if Americans spend more on imports than foreign countries spend on American exports. Americans spend less on imports than foreign countries spend on American exports.
Americans spend more on imports than foreign countries spend on American exports
Identify the following arguments about economic growth as either anti-growth or pro-growth. a. Growth means worker burnout and frantic schedules: b. Rising incomes allow people to buy more education, medical care, and recreation: c. Earth has only finite amounts of natural resources: d. Even the richest countries still have poverty, homelessness, and discrimination: e. Richer countries spend more money protecting the environment: f. Natural resource prices have fallen rather than increased over time:
Anti-growth Pro-growth Anti-growth Anti-growth Pro-growth Pro-growth
Who gains from inflation? Borrowers No one benefits from inflation. Lenders Those with the most skill.
Borrowers
Which of the following statements is true? Deflation means that the inflation rate is falling, whereas with inflation overall prices are rising. Deflation means that the price level is falling, whereas with inflation overall prices are rising. Deflation means that the price level is falling, whereas with inflation the inflation rate is rising. Deflation means that the inflation rate is falling, whereas with inflation the inflation rate is rising.
Deflation means that the price level is falling, whereas with inflation overall prices are rising.
For each of the following events, indicate whether it causes a demand-side or supply-side change, other things equal, and how the change will affect that side of the economy. a. Consumers become more pessimistic about the economy. b. Technological changes enable workers to be more productive. c. Manufacturing firms expect steel prices to decrease significantly. d. Employers are required to provide paid sick leave to part-time as well as full-time employees. e. Government spending increases. f. A hurricane destroys manufacturing plants. g. A stock market crash reduces people's wealth. h. The spread of democracy around the world increases consumer confidence in the United States. i. The United States enters into an arms race with China, resulting in a significant increase in military spending. j. A revolution in Iran results in a significant reduction in the world's supply of oil. k. A new computer chip is developed that is faster and cheaper than previous chips.
Demand decreases Supply increases Supply increases Supply decreases Demand increases Supply decreases Demand decreases Demand increases Demand increases Supply decreases Supply increases
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. a. Tim just graduated from college and is looking for a job. b. A recession causes a local factory to lay off 30 workers. c. Thousands of bus and truck drivers permanently lose their jobs to self-driving vehicles. d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India.
Frictional unemployment Cyclical unemployment Structural unemployment Structural unemployment
Discussion Question 07-03 Which of the following goods are usually intermediate goods and which are usually final goods? a. Running shoes: b. Cotton fibers: c. Watches: d. Textbooks: e. Coal: f. Sunscreen lotion: g. Lumber:
Final intermediate final final intermediate final intermediate
What is the primary reason that changes in total spending lead to cyclical changes in output and employment? Prices are flexible in the long run. Government is unable to respond by changing the amount of money in circulation. Changes in total spending cause supply shocks that cause cyclical variation. Prices are sticky in the short run
Prices are sticky in the short run
phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.
Peak, recession, trough, expansion
Which of the following transactions would be included in GDP? Peter buys a newly constructed house. Olivia receives a tax refund of $500. Mary buys a used book for $5 at a garage sale. Nick buys $5,000 worth of stock in Microsoft.
Peter buys a newly constructed house.
Which of the following best describes the idea of a political business cycle? Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. Fiscal policy will result in alternating budget deficits and surpluses. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse.
Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
Which of the following statements is true? Real GDP is nominal GDP added to the price index. Real GDP is nominal GDP subtracted from the price index. Real GDP is nominal GDP multiplied by the price index. Real GDP is nominal GDP divided by the price index
Real GDP is nominal GDP divided by the price index
What is the efficiency factor? The level of purchases needed to maintain full employment .The level of economic efficiency and full employment needed to reach full production potential.
The level of economic efficiency and full employment needed to reach full production potential.
What is the demand factor? The level of purchases needed to maintain full employment. The level of output needed to maintain the trade balance.
The level of purchases needed to maintain full employment.
What are the four supply factors of economic growth? The level of technology The number of trading partners The quality and quantity of human resources The type of government The quality and quantity of natural resources The stock of capital goods
The level of technology The quality and quantity of human resources The quality and quantity of natural resources The stock of capital goods
The public debt is held as U.S. gold certificates. U.S. securities, corporate bonds, and common stock. Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds. Federal Reserve Notes.
Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
The phase of the business cycle in which real GDP declines is called the peak. a recession. the trough. an expansion.
a recession.
Even though the United States has an unemployment compensation program that provides income for those out of work, should we still worry about unemployment? No, since the unemployment compensation helps keep demand in the economy high, workers will eventually return to their jobs. Yes, because the unemployment compensation program is not available to workers in the service occupations. No, since the program gives the unemployed only enough funds for basic needs, it will encourage them to find jobs quicker. Yes, because the unemployment compensation program merely gives the unemployed enough funds for basic needs
Yes, because the unemployment compensation program merely gives the unemployed enough funds for basic needs
Which one of the following would not shift the aggregate demand curve? depreciation of the international value of the dollar a change in the price level an increase in personal income tax rates a decline in the interest rate at each possible price level
a change in the price level
Which of the following is a private transfer payment? the sale of used clothing at a thrift store a check for $250 sent by a parent to a daughter at college the Social Security benefits paid to a retired worker unemployment benefits received by newly laid-off workers
a check for $250 sent by a parent to a daughter at college
Which of the following is a final good or service? diesel fuel bought for a delivery truck a haircut purchased by a father for his 12-year-old son Chevrolet windows purchased by a General Motors assembly plant fertilizer purchased by a farm supplier
a haircut purchased by a father for his 12-year-old son
A large negative GDP gap implies a sharply rising price level. a high rate of unemployment. a low rate of unemployment. an excess of imports over exports.
a high rate of unemployment.
The GDP price index is a measure of nominal GDP adjusted for inflation. a measure of the price of a specified collection of goods and services compared to the average of the prices of a highly similar collection of goods and services for the last 10 years. computed for each industry sector. a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.
a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.
Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to a multiplier effect. an increase in aggregate supply. a price level that is inflexible downward. a wealth effect.
a price level that is inflexible downward.
At the current price level, producers supply $375 billion of final goods and services while consumers purchase $355 billion of final goods and services. The price level is: above equilibrium at equilibrium. below equilibrium. more information is needed.
above equilibrium
The GDP gap measures the difference between NDP and GDP. NI and PI. nominal GDP and real GDP. actual GDP and potential GDP
actual GDP and potential GDP
In the treatment of U.S. exports and imports, national income accountants add exports, but subtract imports, in calculating GDP. subtract exports, but add imports, in calculating GDP. add both exports and imports in calculating GDP. subtract both exports and imports in calculating GDP.
add exports, but subtract imports, in calculating GDP.
Which of the following would most likely shift the aggregate demand curve to the right? a reduction in household borrowing because of tighter lending practices an increase in stock prices that increases consumer wealth an increase in personal income tax rates increased fear that a recession will cause workers to lose their jobs
an increase in stock prices that increases consumer wealth
Economic growth can be portrayed as a movement from a point on to a point inside a production possibilities curve. an outward shift of the production possibilities curve. an inward shift of the production possibilities curve. a movement from one point to another point on a fixed production possibilities curve.
an outward shift of the production possibilities curve.
In national income accounting, the personal consumption expenditures category includes purchases of automobiles for personal use but not houses. consumer nondurable goods and services but not consumer durable goods. both new and used consumer goods. consumer durable and nondurable goods but not services.
automobiles for personal use but not houses.
According to the Bureau of Labor Statistics, to be officially unemployed a person must be waiting to be called back from a layoff. have lost a job. be 21 years of age or older. be in the labor force
be in the labor force
The immediate-short-run aggregate supply curve represents circumstances where both input and output prices are flexible. input prices are flexible, but output prices are fixed. input prices are fixed, but output prices are flexible. both input and output prices are fixed.
both input and output prices are fixed.
Recurring upswings and downswings in an economy's real GDP over time are called output yo-yos. total product oscillations. recessions. business cycles
business cycles
Productivity measures real output per unit of input. per-unit production costs. the amount of capital goods used per worker. the changes in real wealth caused by price level changes.
real output per unit of input.
Given the annual rate of economic growth, the "rule of 70" allows one to determine the accompanying rate of inflation. calculate the number of years required for real GDP to double. calculate the size of the GDP gap. determine the growth rate of per capita GDP.
calculate the number of years required for real GDP to double.
A nation's gross domestic product (GDP) is the dollar value of the total output produced by its citizens, regardless of where they are living. can be found by summing C + Ig + G + Xn. is always some amount less than its NDP. can be found by summing C + S + G + Xn.
can be found by summing C + Ig + G + Xn.
he Consumer Price Index (CPI) is determined each month by estimating the prices of goods and services in the economy at the same rate as the cost of living increases. averaging all the prices of goods and services in the economy. comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year. comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in cities around the country.
comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year.
Which of the following is the best example of public investment? funding of regulatory agencies construction of highways salaries of senators and representatives government expenditures on food assistance programs
construction of highways
Inflation initiated by increases in wages or other resource prices is labeled cost-push inflation. demand-push inflation. cost-pull inflation. demand-pull inflation.
cost-push inflation.
Real GDP measures current output at base year prices. base year output at current exchange rates. current output at current prices. base year output at current prices.
current output at base year prices.
Government purchases include government spending on government consumption goods only. government consumption goods and public capital goods. government consumption goods, public capital goods, and transfer payments. public capital goods only.
government consumption goods and public capital goods.
Other things equal, appreciation of the dollar increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources. decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources. decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
Discretionary fiscal policy will likely cause budget deficits during both recessions and periods of demand-pull inflation. deficits during recessions and surpluses during periods of demand-pull inflation. surpluses during recessions and deficits during periods of demand-pull inflation. surpluses during both recessions and periods of demand-pull inflation.
deficits during recessions and surpluses during periods of demand-pull inflation
The phrase "too much money chasing too few goods" best describes demand-pull inflation. cost-push inflation. the GDP gap. the inflation premium.
demand-pull inflation.
Gross domestic product does not include the value of the stocks and bonds bought and sold because these transactions are considered consumption expenditures and should not be counted as production of final goods and services. economic investment and should not be counted as production of final goods and services. consumption expenditures, but should be counted as production of final goods and services. economic investment, but should be counted as production of final goods and services.
economic investment and should not be counted as production of final goods and services.
Economic growth is best defined as an increase in wealth in the economy. total consumption expenditures. either real GDP or real GDP per capita. nominal GDP.
either real GDP or real GDP per capita.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? expansion peak trough recession
expansion
The determinants of aggregate demand include input prices and resource productivity. demonstrate why real output and the price level are inversely related. explain shifts in the aggregate demand curve. explain why the aggregate demand curve is downsloping.
explain shifts in the aggregate demand curve.
The losers from inflation are those with incomes rising as fast as the rate of inflation. no savings. fixed incomes in nominal terms. significant debt
fixed incomes in nominal terms.
Net exports are a country's export of goods and services plus its imports of goods and services. goods less its imports of services. goods plus its imports of services. goods and services less its imports of goods and services.
goods and services less its imports of goods and services.
Final goods and services refers to goods and services that are unsold and therefore added to inventories. the excess of U.S. exports over U.S. imports. goods and services whose value has been adjusted for changes in the price level. goods and services purchased by ultimate users, rather than for resale or further processing.
goods and services purchased by ultimate users, rather than for resale or further processing.
The immediate-short-run aggregate supply curve is
horizontal
shape of immediate short run AS curve short run As curve lung run As curve
horizontal upward sloping vertical
Economists include only final goods and services when measuring GDP because if intermediate goods were counted, then prices would be overstated .if intermediate goods were not counted, then multiple counting would occur. if intermediate goods were counted, then multiple counting would occur. if intermediate goods were not counted, then prices would be overstated.
if intermediate goods were counted, then multiple counting would occur.
Which of the following are included in this year's GDP? Which are excluded? a. Interest received on an AT&T corporate bond: b. Social Security payments received by a retired factory worker: c. Unpaid services of a family member who painted the family home: d. Income of a dentist from the dental services she provided: e. A monthly allowance that a college student receives from home: f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim: g. The publication and sale of a new college textbook: h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay: i. A $2 billion increase in business inventories: j. The purchase of 100 shares of Alphabet (the parent company of Google) stock:
included excluded excluded included excluded excluded included excluded included excluded
In the diagram, a shift from AS1 to AS3 might be caused by a(n) 3 far left, 1 far right increase in productivity. decrease in business taxes. increase in the prices of imported resources. decrease in the prices of domestic resources
increase in the prices of imported resources.
Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to AD 1 - AD 3 left to right Qf at AD 2 increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. increase taxes and reduce government spending to shift the aggregate demand curve from AD3 to AD1. do nothing since the economy appears to be achieving full-employment real output.
increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.
The crowding-out effect of expansionary fiscal policy suggests that increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. it is very difficult to have excessive aggregate spending in the U.S. economy. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. consumer and investment spending always vary inversely.
increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is employed. unemployed. in the labor force. not in the labor force
not in the labor force
Contractionary fiscal policy is so named because it necessarily reduces the size of government. is expressly designed to expand real GDP. is aimed at reducing aggregate demand and thus achieving price stability. involves a contraction of the nation's money supply.
is aimed at reducing aggregate demand and thus achieving price stability.
Graphically, cost-push inflation is shown as a leftward shift of the AS curve. leftward shift of the AD curve. rightward shift of the AD curve. rightward shift of the AS curve.
leftward shift of the AS curve.
The nominal interest rate plus the real interest rate is the inflation rate. plus the inflation rate is the real interest rate. minus nominal income is the inflation rate. minus the inflation rate is the real interest rate
minus the inflation rate is the real interest rate
The sale of a used automobile would not be included in GDP of the current year because it is a nonproduction transaction. nonmarket transaction. private transfer payment. purely financial transaction.
nonproduction transaction.
In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are not counted. counted as consumption spending. counted as investment spending. counted as government spending.
not counted.
Label each of the following scenarios as an example of a recognition lag, administrative lag, or operational lag. a. To fight a recession, Congress has passed a bill to increase infrastructure spending—but the legally required environmental-impact statement for each new project will take at least two years to complete before any building can begin. b. Distracted by a war that is going badly, politicians take no notice until inflation reaches 8 percent. c. Politicians recognize a sudden recession, but it takes many months of political deal making before they finally approve a stimulus bill. d. To fight a recession, the president orders federal agencies to get rid of petty regulations that burden private businesses—but the federal agencies begin by spending a year developing a set of regulations on how to remove petty regulations.
operational recognition administrative operational
If nominal GDP rises, real GDP may either rise or fall. real GDP must fall. we can be certain that the price level has risen. real GDP must also rise.
real GDP may either rise or fall.
The more reliable measure for comparing changes in the standard of living over a series of years is nominal GDP. marginal GDP. average GDP. real GDP.
real GDP.
Which of the following formulas is correct? Percentage change in real income approximates percentage change in price level minus percentage change in nominal income. price level approximates percentage change in real income minus percentage change in nominal income. nominal income approximates percentage change in price level minus percentage change in real income. real income approximates percentage change in nominal income minus percentage change in price level
real income approximates percentage change in nominal income minus percentage change in price level
Inflation lowers interest rates. increases the purchasing power of the dollar. reduces the export power of the dollar. reduces the purchasing power of the dollar
reduces the purchasing power of the dollar
If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will fall by 12 percent. rise by 6 percent. fall by 6 percent. remain constant
remain constant
Graphically, demand-pull inflation is shown as a rightward shift of the AD curve along an upsloping AS curve. leftward shift of the AS curve along a downsloping AD curve. leftward shift of the AS curve along an upsloping AD curve. rightward shift of the AD curve along a downsloping AS curve
rightward shift of the AD curve along an upsloping AS curve
Growth of production capacity is shown by the (AB left line CD right line) shift from CD to AB. movement away from point A and toward point B. movement away from point B and toward point A. shift from AB to CD
shift from AB to CD
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called compositional unemployment. frictional unemployment. structural unemployment. cyclical unemployment.
structural unemployment.
The Bureau of Labor Statistics (BLS) calculates the inflation rate from one year to the next by subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the most recent year. adding the CPI of the previous year to the CPI of the most recent year, and then dividing by 2. adding the CPI of the previous year to the CPI of the most recent year, and then dividing by the average of both years. subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year
subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year
The largest contributor to increases in the productivity of American labor is technological advance. increases in the quantity of capital. improvements in labor quality. the reallocation of labor from agriculture to manufacturing.
technological advance.
n the accompanying figure, a shift from AD2 to AD1 would be consistent with what economic event in U.S. history? AD1 is on left the Great Recession of 2007-2009 cost-push inflation in the early 1970s demand-pull inflation in the late 1960s World War 2 in the 1940s
the Great Recession of 2007-2009
The public debt is the amount of money that Americans owe to foreigners. state and local governments owe to the federal government. the federal government owes to taxpayers. the federal government owes to holders of U.S. securities
the federal government owes to holders of U.S. securities
Nominal GDP is determined in the market, whereas real GDP is computed by a government agency. adjusted for inflation, whereas real GDP is the market or money value of all final goods and services produced by the economy in a given year. the market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation. the sum of intermediate and final goods and services, whereas real GDP is the sum of final goods and services only.
the market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation.
Which of the following do national income accountants consider to be investment? the purchase of corporate bonds the purchase of a new house the purchase of an automobile for private, nonbusiness use the purchase of gold coins
the purchase of a new house
The phase of the business cycle in which real GDP is at a minimum is called the underside. the trough. the peak. a recession.
the trough.
When measuring GDP, economists don't include the value of the used furniture bought and sold because used furniture is a durable good. this value was already counted in GDP in some previous year. the value of used furniture is not reported anywhere. the value of used furniture needs to be averaged over a specified number of years.
this value was already counted in GDP in some previous year.
Per-unit production cost is a determinant of aggregate demand. units of output divided by total input cost. total input cost divided by units of output. real output divided by inputs.
total input cost divided by units of output.
The shape of the immediate-short-run aggregate supply curve implies that increases in aggregate demand are inflationary. government cannot bring an economy out of a recession by increasing spending. total output depends on the volume of spending. output prices are flexible, but input prices are not.
total output depends on the volume of spending.
An increase in your nominal income and a decrease in your real income might occur simultaneously if your real income increases more than the cost of living increases. your real income increases at the same rate as the cost of living increases. your nominal income increases more than the cost of living increases. your nominal income increases less than the cost of living increases
your nominal income increases less than the cost of living increases
