MCQ for Economics June 2005 Paper 1 Question 24

[arvind0708]

24 The table shows the share of a worker’s income spent on three classes of good and the
percentage change in the prices of the goods over a year.
share of income
spent on goods
change in prices of
goods
clothing 4
1
+25 %
food 2
1
+50 %
fuel 4
1
-25 %
Over the same period the worker’s money income rises by 25 %.
What happens to the worker’s real income?
A It falls by 25 %.
B It falls by 50 %.
C It rises by 25 %.
D It is unchanged.

Can't gt the answer

 

[Xenon]

% change in price = (.25 x +25%) + (.5 x +50%) + (.25 x -25%) = +25%
% change in income = 25%
Real income refers to the nominal or money income adjusted with inflation. While money income rose by 25%, price level also rose by 25%. Therefore real income remained unchanged.