If nominal wages increase by 6 percent while real wages increase by 4 percent, the inflation rate must be
A) 2 percent.
B) 4 percent.
C) 6 percent.
D) 10 percent.

Question

Quizplus · Accepted Answer

Nominal wages refer to the actual amount of money paid to workers, while real wages refer to the purchasing power of these wages. Real wages are calculated by adjusting nominal wages for inflation.

In this case, if nominal wages increased by 6 percent but real wages only increased by 4 percent, it means that the cost of living must have increased by 2 percent. Therefore, the inflation rate must be 2 percent.

If Nominal Wages Increase by 6 Percent While Real Wages