Suppose there is a 5 percent increase in the nominal wages of workers in an economy.The annual rate of inflation in the economy is about 2 percent.Which of the following is true in this case?
A)Real wage would fall by about 10 percent.
B)Real wage would increase by about 20 percent.
C)Real wage would fall by about 25 percent.
D)Real wage would increase by about 50 percent.
E)Real wage would increase by about 3 percent.

Question

Quizplus · Accepted Answer

Real wage is calculated by subtracting the rate of inflation from the nominal wage increase. Therefore, real wage increase = nominal wage increase - inflation rate = 5% - 2% = 3%. Therefore, the real wage would increase by about 3 percent.

Suppose There Is a 5 Percent Increase in the Nominal