Figure 8-5
-In the figure above, in going from points A to B the real wage ________, and then from point B to point C (where the exact price level is 1.1025, rounded to 1.10 in the diagram) the real wage ________.
A) rose, remained constant
B) rose, rose again
C) fell, remained constant
D) fell, fell again
E) remained constant, remained constant

Question

Figure 8-5 
-In the figure above, in going from points A to B the real wage ________, and then from point B to point C (where the exact price level is 1.1025, rounded to 1.10 in the diagram) the real wage ________.
A) rose, remained constant 
B) rose, rose again 
C) fell, remained constant 
D) fell, fell again 
E) remained constant, remained constant

Quizplus · Accepted Answer

In going from points A to B, the nominal wage increases from $20 to $24, while the price level remains constant at 1. Thus, the real wage increases from 20/1 = 20 to 24/1 = 24. 
In going from point B to point C, the nominal wage remains constant at $24, while the price level increases from 1 to 1.10. Thus, the real wage decreases from 24/1 = 24 to 24/1.10 = 21.82, rounded to 21.8 in the diagram. Therefore, the real wage falls and remains constant at point C.

Figure 8-5 -In the Figure Above, in Going from Points a to Points