Over the past year, Eli has been working very hard. His employer has taken notice and is giving Eli a 6% raise in salary. During this past year, overall prices in the economy have increased by 4%. Given this information, Eli's real wage has:

Question

Quizplus · Accepted Answer

Eli's real wage is his nominal (or actual) wage adjusted for inflation. His nominal wage has increased by 6%, but prices in the economy have also increased by 4%. Therefore, to find his real wage, we subtract the inflation rate from his nominal wage increase:

Real wage increase = Nominal wage increase - Inflation rate

Real wage increase = 6% - 4%

Real wage increase = 2%

So Eli's real wage has increased by 2%.

Over the Past Year, Eli Has Been Working Very Hard