If the nominal wage rises by 4 percent and the price level rises by 7 percent, the real wage will
A) be unaffected.
B) rise by 3 percent.
C) fall by 3 percent.
D) rise by 11 percent.

Question

Quizplus · Accepted Answer

The real wage is calculated as the nominal wage divided by the price level. If the nominal wage rises by 4 percent, but the price level rises by 7 percent, then the real wage will decrease by 3 percent [(4/107)*100 - 100 = -3.74%]. Therefore, the correct choice is C) fall by 3 percent.

If the Nominal Wage Rises by 4 Percent and the Price