Assume that your nominal wage was fixed at $15 an hour, and the price index rose from 100 to 105. In this case, your real wage has
A)decreased to $10.
B)increased to $15.75.
C)decreased to $14.29.
D)increased to $20.

Question

Quizplus · Accepted Answer

When the price index rises from 100 to 105, it indicates inflation or an increase in the general price level by 5%. If your nominal wage remains the same ($15/hour), your purchasing power decreases. To find the real wage, you adjust the nominal wage by the change in price level. The real wage is calculated as $15 / (105/100) = $14.29. This shows a decrease in real wage, reflecting the reduced purchasing power due to inflation.

Assume That Your Nominal Wage Was Fixed at $15 an Hour