If the anticipated rate of inflation is 5 per cent and workers agree to a wage increase of 4 per cent,if the anticipated rate occurs,then nominal wages will

Question

Quizplus · Accepted Answer

If the anticipated rate of inflation is 5%, and workers agree to a wage increase of 4%, then nominal wages will only rise by 4%. This means that the increase in nominal wage will not be enough to keep up with the inflation rate, which is 5%. Therefore, in real terms, there will be a decrease in wages of 1% (5% inflation rate minus 4% nominal wage increase), but nominally, the wages will rise by 4%.

If the Anticipated Rate of Inflation Is 5 Per Cent