Question: Behavioural economists have discovered that people view a 2% decrease in their income without inflation as unfair, but a 3% increase in their income in

Behavioural economists have discovered that people view a 2% decrease in their income without inflation as unfair, but a 3% increase in their income in the presence of 5%

inflation as fair. What are the nominal and real rates of change in their incomes? What tendency is leading people to feel like the pay decrease is unfair?

Learning Objective 12.4 Analyze the role of money so that you can assess the costs of inflation.

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