If the inflation rate is 3 percent and the nominal wage is frozen for one year,by how much will the real wage change?
A) It will decrease by about 3 percent.
B) It will not change.
C) It will increase by 3 percent.
D) It will triple.
E) We do not have enough information to determine this answer.

Question

Quizplus · Accepted Answer

If the nominal wage is frozen then it will not increase with the inflation rate, which means that the real wage will decrease by the same amount as the inflation rate (in this case, 3 percent). Hence, the correct choice is (A).

If the Inflation Rate Is 3 Percent and the Nominal