Employees at the hospital have negotiated a 3 percent increase in wages for the next year,based on their inflation expectations.If inflation is actually 5 percent over the next year,which of the following will occur?

Question

Quizplus · Accepted Answer

The negotiated wage increase of 3 percent is lower than the actual inflation rate of 5 percent. This means that the real wages (purchasing power) of the hospital employees will decrease by 2 percent (5 percent inflation rate minus 3 percent wage increase), resulting in a fall in real wages.

Employees at the Hospital Have Negotiated a 3 Percent Increase