Purchasing
power
3. Higher nominal interest rates for borrowers
4. Reduction of international competitiveness
o Costs of production too high; domestic products too expensive
o Thus, exports will DECREASE because they're too expensive to make.
As prices rise, and incomes
• Remain constant, or
• Rise at a slower rate
People become poorer.
Real income:
(See page 312 for worked example)
Change in real income: