question 5 of 5\nif marys nominal income rises by 4%, while her real income fell by 2%, what happens to the…

question 5 of 5\nif marys nominal income rises by 4%, while her real income fell by 2%, what happens to the level of prices?\nprices increase by 2%.\nprices increase by 6%.\nprices remain constant.\nprices decrease by 6%.\nprices decrease by 2%.

question 5 of 5\nif marys nominal income rises by 4%, while her real income fell by 2%, what happens to the level of prices?\nprices increase by 2%.\nprices increase by 6%.\nprices remain constant.\nprices decrease by 6%.\nprices decrease by 2%.

Answer

Explanation:

Step1: Recall the formula

The formula for the relationship between nominal - income growth rate ($g_n$), real - income growth rate ($g_r$), and price - level growth rate ($g_p$) is $g_n=g_r + g_p$.

Step2: Rearrange the formula to solve for $g_p$

We can rewrite the formula as $g_p=g_n - g_r$.

Step3: Substitute the given values

Given that $g_n = 4%$ and $g_r=- 2%$ (since real income fell, the growth rate is negative), then $g_p=4%-( - 2%)$.

Step4: Calculate the result

$g_p = 4%+2%=6%$.

Answer:

B. Prices increase by 6%.