If inflation is 6% and you receive a 1% raise in your nominal wage, by how much did your real wage change?
A)-5%
B)1%
C)-6%
D)6%

Question

Quizplus · Accepted Answer

Your real wage, which is your wage adjusted for inflation, effectively decreased by 5%. This is because if inflation is 6%, it means the general price level of goods and services has increased by 6%. If your nominal wage (the wage not adjusted for inflation) only increases by 1%, your purchasing power decreases. The real wage change is calculated as the nominal wage increase minus the inflation rate, which in this case is 1% - 6% = -5%.

If Inflation Is 6% and You Receive a 1% Raise