To answer this question, first let us determine the effect of
rise/fall of the nominal income and price index on the real income.
As nominal income increases, real income increases.
As nominal income decreases, real income decreases.
As price index increases, real income decreases.
As price index decreases, real income increases.
A.
5% + 2% = 7%
B.
5% - 2% = 3%
C.
2% - 5% = -3%
D.
2% + 5% = 7%
Therefore the answer is letter B.
