Asked by Donald Winters on May 13, 2024
Verified
If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year,which of the following is correct?
A) Real wages will increase by 2 percent per year.
B) Real wages will increase by 3 percent per year.
C) Real wages will decrease by 3 percent per year.
D) Real wages will decrease by 2 percent per year.
E) Real wages will remain constant.
Nominal Wage Rates
The amounts of money paid to workers before adjustments for inflation.
Price Level
A measure of the average prices of goods and services in an economy at a given time, often reflected in a price index.
Real Wages
Wages adjusted for inflation, reflecting the true purchasing power of the earnings of the workforce.
- Acquire knowledge on how nominal wages, real wages, and the price level interrelate.
- Understand the impact of inflation on both nominal and real wages.
Verified Answer
BM
Barry McKinleyMay 18, 2024
Final Answer :
A
Explanation :
Real wages adjust for inflation, so if nominal wages increase by 5% and prices increase by 3%, real wages effectively increase by 2% (5% - 3%).
Learning Objectives
- Acquire knowledge on how nominal wages, real wages, and the price level interrelate.
- Understand the impact of inflation on both nominal and real wages.