Step 1: Write the expression for modulation index.
In amplitude modulation,
\[
m=\frac{V_m}{V_c}
\]
where
\[
V_m=\text{peak voltage of modulating signal}
\]
and
\[
V_c=\text{peak voltage of carrier signal}
\]
Step 2: Apply the percentage changes.
The modulating signal increases by \(1\%\), so
\[
V_m'=1.01V_m
\]
The carrier signal increases by \(3\%\), so
\[
V_c'=1.03V_c
\]
Therefore, new modulation index is
\[
m'=\frac{V_m'}{V_c'}
\]
\[
m'=\frac{1.01V_m}{1.03V_c}
\]
\[
m'=m\left(\frac{1.01}{1.03}\right)
\]
Step 3: Find the percentage change.
\[
\frac{m'}{m}=\frac{1.01}{1.03}
\]
\[
\frac{m'}{m}\approx0.9806
\]
Thus, modulation index decreases by approximately
\[
(1-0.9806)\times100
\]
\[
\approx1.94\%
\]
\[
\approx2\%
\]
Hence, the change is
\[
-2\%
\]
Step 4: Final conclusion.
Therefore, the modulation index changes by
\[
\boxed{-2\%}
\]