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JAMB Economics 2011 Question 21

Question 21

Money and Inflation

If real income increases while nominal income remains the same, it can be inferred that

  1. A.unemployment rate has decreased
  2. B.general prices have fallen
  3. C.employment rate has risen
  4. D.general prices have risen.
Show the answer and explanation

Answer: B (general prices have fallen)

Explanation

Real income is money income adjusted for prices. If money income is unchanged but it buys more, prices must have fallen.