Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The standard of living improved as nominal income increased more than inflation.
B
The standard of living remained the same since nominal income matched inflation.
C
The standard of living decreased because inflation surpassed the increase in nominal income.
D
The standard of living improved due to a decrease in the price index.
Understanding the Answer
Let's break down why this is correct
Answer
In Flower Land, even though nominal income increased by 10% in 2020, the inflation rate was higher at 15%. This means that while people had more money coming in, the prices of goods and services went up even more, making things more expensive. As a result, people could actually buy less with their increased income, which negatively affects their standard of living. For example, if someone earned $1,000 before and now earns $1,100, but prices also went up by 15%, they would need $1,150 to maintain the same buying power. Therefore, the increase in income did not keep up with inflation, leading to a decline in the standard of living.
Detailed Explanation
When prices go up faster than income, people can buy less. Other options are incorrect because This option suggests that income growth was better than inflation; This choice implies that income and inflation were equal, which they were not.
Key Concepts
Inflation
Nominal Income
Purchasing Power
Topic
Inflation and Standard of Living
Difficulty
hard level question
Cognitive Level
understand
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