Employees at the hospital have negotiated a 3 percent increase in wages for the next year, based on their inflation expectations.If inflation is actually 5 percent over the next year, which of the following will occur?

Question

Quizplus · Accepted Answer

If the actual inflation rate is 5 percent and the negotiated increase in wages is only 3 percent, then the real wages (adjusted for inflation) for hospital employees will fall by 2 percent. This means that although employees will receive a wage increase, the increase will not keep up with the rise in prices, resulting in a decrease in purchasing power. The other choices are incorrect: A is not necessarily true, C is not related to the question, D is not a consequence of the negotiation, and E is not true given the information provided.

Employees at the Hospital Have Negotiated a 3 Percent Increase