An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. What has happened to her real and nominal wage?
A) Her real and nominal wages have risen.
B) Her real and nominal wages have fallen.
C) Her real wage has risen, but her nominal wage has fallen.
D) Her real wage has fallen, but her nominal wage has risen.

Question

Quizplus · Accepted Answer

The nominal wage has risen by $100, but if the increase in her wage is not enough to keep up with inflation or the rising cost of goods, her real wage has actually fallen. This means that her purchasing power has decreased despite her higher nominal wage.

An Assistant Professor of Economics Gets a $100-A-Month Raise, but Then