Burger King is paying $8 an hour to its workers.If the expected inflation rate equals the actual inflation rate and both are 10 percent a year, then to keep the real wage rate constant in a year the money wage rate must
A) rise to $8.80 an hour.
B) fall to $7.20 an hour.
C) stay at $8.00 an hour.
D) rise to $8.10 an hour.
E) rise to $8.40 an hour.

Question

Quizplus · Accepted Answer

To keep the real wage rate constant, the money wage rate needs to increase by the same amount as the inflation rate. If both the expected inflation rate and the actual inflation rate are 10% per year, then the money wage rate needs to increase by 10% in order to maintain the same purchasing power.

Starting with a money wage rate of $8 per hour, a 10% increase would be $0.80, resulting in a new wage rate of $8.80 per hour. Therefore, answer choice A is the correct answer.

Burger King Is Paying $8 an Hour to Its Workers