If nominal income in Flower Land increases by 5% but inflation rises by 7%, what is the likely effect on the standard of living for residents?

In Flower Land, if nominal income increases by 5% but inflation rises by 7%, the real income actually decreases. This is because inflation means that prices for goods and services are going up, making everything more expensive. So even though people are earning more money, their purchasing power is lower than before. For example, if someone used to buy a basket of groceries for $100, with a 7% inflation, that same basket would now cost $107. Therefore, residents may find it harder to afford the same things they used to, leading to a decline in their standard of living.