If the nominal wage of a worker increases by 10 percent and her purchasing power decreases by 5 percent, then we can conclude that the price level must have _____ than 10 percent.
A) increased by more
B) increased by less
C) decreased by more
D) decreased by less

Question

Quizplus · Accepted Answer

If the nominal wage of a worker increases by 10 percent but her purchasing power decreases by 5 percent, it implies that the cost of goods and services she can buy with her wage has increased by more than 10 percent. This is because her higher nominal wage does not translate into greater purchasing power, indicating that the price level has increased by more than the wage increase.

If the Nominal Wage of a Worker Increases by 10