If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year,which of the following is correct?
A)Real wages will increase by 2 percent per year.
B)Real wages will increase by 3 percent per year.
C)Real wages will decrease by 3 percent per year.
D)Real wages will decrease by 2 percent per year.
E)Real wages will remain constant.

Question

Quizplus · Accepted Answer

Real wages adjust for inflation, so if nominal wages increase by 5% and prices increase by 3%, real wages effectively increase by 2% (5% - 3%).

If Nominal Wage Rates Increase by 5 Percent Per Year