Assume that initially your nominal wage was $16 an hour and the price index was 100. If the price level increases to 105, then your:
A) Real wage has increased to $21
B) Real wage has decreased to $15.24
C) Nominal wage has increased to $21
D) Nominal wage has decreased to $15.24

Question

Quizplus · Accepted Answer

To calculate our real wage, we need to use the formula:

(real wage) = (nominal wage) / (price index) * 100

Initially, our real wage was:

(16) / (100) * 100 = $16

When the price index increases to 105, our new real wage is:

(16) / (105) * 100 = $15.24

Therefore, our real wage has decreased to $15.24.

Assume That Initially Your Nominal Wage Was $16 an Hour