Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The resident's purchasing power has decreased, leading to a lower standard of living.
B
The resident's purchasing power has increased, improving their standard of living.
C
The resident's standard of living remains unchanged as nominal income has increased.
D
The resident can afford more goods than before due to the nominal income rise.
Understanding the Answer
Let's break down why this is correct
Answer
When a resident of Flower Land received a 5% increase in their income, it might seem like they were earning more money. However, the inflation rate was 7%, which means that prices for goods and services increased even more than their income. This situation indicates that, despite earning more, the resident can buy less than before because their money doesn't stretch as far due to higher prices. For example, if they could buy 100 apples for $100 before the increase, after accounting for inflation, they might only be able to buy about 95 apples with the same amount of money. Therefore, the resident's standard of living has likely decreased, as their purchasing power has dropped.
Detailed Explanation
The resident's income went up by 5%, but prices of goods went up by 7%. Other options are incorrect because Some might think that any income increase means better living; It's a common belief that an income increase keeps living standards the same.
Key Concepts
Inflation
Standard of Living
Purchasing Power
Topic
Inflation and Standard of Living
Difficulty
easy level question
Cognitive Level
understand
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