If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then:
A)real wages have gone up by 2.5%.
B)inflation decreases by 1.5%.
C)inflation rises by 1.5%.
D)real wages have fallen by 2.5%.

Question

Quizplus · Accepted Answer

Real wages have fallen by 2.5%. The nominal wage raise of 1.5% is less than the inflation rate of 4%, which means that the real value of wages has decreased by 2.5%.

If Inflation Is 4% and a Firm Gives Its Workers