Lorrie will receive a nominal wage increase of 10 percent this year.The inflation rate was 5 percent last year and is predicted to be 8 percent this year.If the economic forecast is correct,her real wage this year
A) will increase by approximately 2 percent
B) will increase by approximately 8 percent
C) will increase by approximately 5 percent
D) will remain the same
E) cannot be calculated without knowing the number of dollars by which her wage increases

Question

Quizplus · Accepted Answer

To calculate the real wage increase, we need to adjust the nominal wage increase for inflation.

Real wage increase = Nominal wage increase - inflation rate

Nominal wage increase is 10 percent

Inflation rate last year was 5 percent, so the inflation rate this year will be 8 - 5 = 3 percent higher than last year.

Real wage increase = 10% - 3% = 7%

Therefore, Lorrie's real wage will increase by approximately 7%.

Lorrie Will Receive a Nominal Wage Increase of 10 Percent