Suppose a worker signs a contract containing an 8 percent nominal wage increase with inflation expected to be 3 percent.Inflation turns out to be 6 percent,but the contract also contains 60 percent COLA protection.The worker's real wage under the contract
A)falls by 1.2 percent.
B)falls by 2.4 percent.
C)rises by 3.8 percent.
D)rises by 3.0 percent.
E)rises by 1.8 percent.

Question

Quizplus · Accepted Answer

The real wage under the contract rises by 3.8 percent because the nominal wage increase of 8 percent is greater than the inflation rate of 6 percent, and the COLA protection of 60 percent provides additional protection against inflation.

Suppose a Worker Signs a Contract Containing an 8 Percent