4. In which of the following cases would real income rise26 A. Nominal income ri

Question

4. In which of the following cases would real income rise26 A. Nominal income rises by 8 percent, and the price level rises by 10 percent. B. Nominal income rises by 2 percent, and the price level remains unchanged C. Nominal income falls by 4 percent, and the price level fall by 4 percent. D. Real income will rise in all of the above cases. 5.be slope of the immediate-short-run aggregate supply curve is based on the assumption that:29 A. Both input and output prices are fixed B. Neither input nor output prices are fixed C. Input prices are flexible but output prices are fixed Dlnput prices are fixed but output prices are flexible oWhat backs" the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money's purchasing power? 31

Explanation / Answer

Question 4

Real income rises in case when increase in nominal income is greater than the rise in price level.

So, if nominal income rises by 2 percent but price level remains unchanged then real income will rise.

The correct answer is the option (B).

Question 5

The immediate short-run aggregate supply curve is a horizontal straight line at given price level.

This shape is based on the assumption that both input and output prices are fixed. This means that time constraint is such that no change can be made in either input prices or output prices.

The correct answer is the option (A).

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