Free-Response Question Chapter 27 A nation's ination rate increases by its expected average 2% per year. (a) Explain the effect of this ination on the real income of a worker whose nominal income rises 2% per year (b) Now assume that this year, the ination rate unexpectedly jumped to 10%. Explain the effect of this increase in ination on each of the following. (i) Aworker whose nominal income rose 2% this year (ii) A retiree living on a fixed pension (iii) A senior citizen living on Social Security which is indexed with a COLA (iv) A homeowner paying a 30-year home mortgage with a fixed interest rate