Answer:
The real income increased by $600
Explanation:
Data provided in the question:
Consumer Price Index in year 1 = 120
Consumer Price Index in year 2 = 125
Average nominal income in year 1 = $30,000
Average nominal income in year 2 = $32,000
Now,
We know
Real income = [ ( Nominal income ÷ CPI) ] × 100
Thus,
Real income in year 1 =[ ( $30,000 ÷ 120) ] × 100
= $25,000
Real income in year 2 = [ ( $32,000 ÷ 125 ) ] × 100
= $25,600
Therefore,
The change in real income from year 1 to year 2
= Real income in year 2 - Real income in year 1
= $25,600 - $25,000
= $600
The positive value means an increase
Hence,
The real income increased by $600
