If the nominal wage of workers decreases by 5% and the real wage of workers increases by 5%, then the overall price level must have:
A) increased by 5%.
B) decreased by 5%.
C) increased by more than 5%.
D) decreased by more than 5%.

Question

Quizplus · Accepted Answer

For the real wage to increase by 5% while the nominal wage decreases by 5%, the overall price level must have decreased by more than 5%. This is because the real wage is adjusted for inflation and reflects the purchasing power of the nominal wage. A decrease in the price level increases the purchasing power of wages.

If the Nominal Wage of Workers Decreases by 5% and the Real