Nominal vs. Real Income Adjustment for Inflation

Steps:

• Nominal income is the unadjusted dollar amount, which rose by 3%.
• Inflation rate of 3% means prices increased by 3%.
• Real income measures purchasing power, calculated as nominal growth minus inflation.
• Real income change = 3% - 3% = 0%, so it stays the same.

Why C is correct:

• Real income remains unchanged when nominal income growth equals the inflation rate, per the real income formula: %ΔReal = %ΔNominal - %Inflation.

Why the others are wrong:

• A: Real income did not increase; it stayed flat.
• B: Nominal income increased by 3%, not remained unchanged; real income did not rise by 3%.
• D: Real income did not increase by 6%; it remained unchanged.

Final answer: C