If nominal wages increase by 5 percent while real wages fall by 1 percent, the inflation rate must be
A) 1 percent.
B) 4 percent.
C) 5 percent.
D) 6 percent.

Question

Quizplus · Accepted Answer

The inflation rate is the percentage change in the price level. In this case, the price level has increased by 6 percent, since nominal wages have increased by 5 percent and real wages have fallen by 1 percent.

If Nominal Wages Increase by 5 Percent While Real Wages