If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year,which of the following is correct?
A)real wages increase by 2 percent per year
B)real wages increase by 3 percent per year
C)real wages decrease by 3 percent per year
D)real wages decrease by 2 percent per year
E)real wages remain constant

Question

Quizplus · Accepted Answer

Real wages increase by the difference between the nominal wage increase and the inflation rate, which is 5% - 3% = 2%.

If Nominal Wage Rates Increase by 5 Percent Per Year