When inflation occurs,
A)real wages must necessarily fall.
B)real wages must necessarily rise.
C)workers will experience falling real incomes.
D)workers' real income may rise or fall.

Question

Quizplus · Accepted Answer

Inflation can lead to a rise or fall in workers' real income, depending on whether their wage increases faster than the rate of inflation. If their wage increases less than the rate of inflation, then workers will experience a fall in real income. Similarly, if their wage increases faster than the rate of inflation, then workers will experience a rise in real income. Therefore, it is not necessarily true that inflation will lead to a fall in real wages, nor will it necessarily lead to a rise in real wages.

When Inflation Occurs