If your salary increased by 9 percent and prices increased by 3 percent, how much did your real wage rise by?

Question

Quizplus · Accepted Answer

Real wage rise is the increase in purchasing power or the increase in the value of the salary after accounting for inflation. In this case, the nominal wage increased by 9 percent, but inflation (prices) increased by 3 percent. Therefore, the real wage rise is:

Real wage rise = (1 + nominal wage rise) / (1 + inflation rate) - 1
Real wage rise = (1 + 0.09) / (1 + 0.03) - 1
Real wage rise = 0.06 or 6 percent

So, the real wage rose by 6 percent. Therefore, the best choice is B.

If Your Salary Increased by 9 Percent and Prices Increased