If the nominal wage rises from €10 per hour in period 1 to €15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:
A)the nominal wage is falling.
B)the expected real wage is falling.
C)the actual real wage is falling.
D)all of the above.

Question

Quizplus · Accepted Answer

The expected real wage is calculated by dividing the nominal wage by the expected price level. In period 1, it is €10/1 = €10, and in period 2, it is €15/3 = €5, indicating a fall.

If the Nominal Wage Rises from €10 Per Hour in Period