A labor union anticipates a 7 percent inflation rate in each of the next three years.It wants to obtain a 3 percent increase in real wages in each of those three years.To obtain this goal,the requisite nominal wage hike it should negotiate is
A) 7 percent each year
B) 3 percent each year
C) 10 percent each year
D) 10 percent the first year and 3 percent each year thereafter
E) 21 percent the first year and 3 percent each year thereafter

Question

Quizplus · Accepted Answer

To achieve a 3% increase in real wages with a 7% inflation rate, the nominal wage increase should be 10% each year (7% to cover inflation + 3% real increase).

A Labor Union Anticipates a 7 Percent Inflation Rate in Each