Suppose Evelyn received a 5 percent increase in her nominal wage.Over the year, inflation ran about 2 percent.Which of the following describes how Evelyn's nominal and real wages were affected?

Question

Quizplus · Accepted Answer

Evelyn's nominal wage increased by 5 percent. However, we need to adjust for inflation (i.e., calculate her real wage). To do so, we subtract the inflation rate of 2 percent from the nominal wage increase of 5 percent: 5% - 2% = 3%. This means that Evelyn's real wage increased by 3 percent, which is a positive change. Therefore, the correct choice is D.

Suppose Evelyn Received a 5 Percent Increase in Her Nominal