Suppose Flora received a 4 percent increase in her nominal wage.Over the year, inflation runs about 7 percent.Which of the following describes how Flora's nominal and real wages were affected?

Question

Quizplus · Accepted Answer

Flora's nominal wage increased by 4 percent. However, with inflation running at 7 percent, the cost of living increased, which means that her purchasing power decreased. Her real wage, which is the purchasing power of her nominal wage, decreased. Therefore, Flora's nominal wage increased, but her real wage decreased.

Suppose Flora Received a 4 Percent Increase in Her Nominal