When incomes are measured in terms of fixed (base-year) prices they are called ________incomes.A) nominalB) realC) inflatedD) aggregate
Question
When incomes are measured in terms of fixed (base-year) prices they are called ________incomes.A) nominalB) realC) inflatedD) aggregate
Solution
The correct answer is B) real. When incomes are measured in terms of fixed (base-year) prices, they are called real incomes. This is because real income takes into account the effects of inflation on purchasing power. In contrast, nominal income does not consider inflation and is the amount of money received in a given period without adjusting for inflation.
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