If the nominal wage rises from €10 per hour in period one to €15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:
A)the nominal wage is rising.
B)the expected real wage is rising.
C)the actual real wage is falling.
D)all of the above.

Question

Quizplus · Accepted Answer

The nominal wage is rising from €10 to €15 per hour. The expected real wage is falling because the expected price level increase is greater than the nominal wage increase. The actual real wage is also falling because the actual price level increase is greater than the nominal wage increase.

If the Nominal Wage Rises from €10 Per Hour in Period