Real income rises if nominal increase exceeds inflation

Steps:

• Compute directors' real increase: 15% nominal - 3.4% inflation = 11.6% rise.
• Compute workers' real increase: 5% nominal - 3.4% inflation = 1.6% rise.
• Compare to zero: both positive values indicate real income growth.
• Conclude both groups experienced real income increases.

Why D is correct:

• Real income is nominal income adjusted for inflation; formula (1 + nominal rate)/(1 + inflation rate) - 1 shows both exceed inflation, yielding positive real growth.

Why the others are wrong:

• A: Incorrect, as both nominal increases (15%, 5%) surpass 3.4% inflation, so neither fell.
• B: Incorrect, workers' 5% > 3.4%, so their real income rose, not fell.
• C: Incorrect, directors' 15% >> 3.4%, so their real income rose, not fell.

Final answer: D