If inflation is 2% and a firm does not give its workers a nominal raise, then:
A)nominal wages are zero.
B)inflation goes down by 2%.
C)real wages have fallen by 2%.
D)real wages have risen by 2%.

Question

Quizplus · Accepted Answer

Real wages are calculated by adjusting nominal wages for inflation. If nominal wages stay the same but inflation is at 2%, then in real terms, the workers are earning 2% less than they were before. Therefore, real wages have fallen by 2%.

If Inflation Is 2% and a Firm Does Not Give