If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to:
A)raise nominal wages by 1%.
B)lower nominal wages by 1%.
C)lower real wages by 2%.
D)raise inflation by 2%.

Question

Quizplus · Accepted Answer

If inflation is 0%, then real wages are equal to nominal wages. Therefore, to lower real wages by 1%, the firm would need to lower nominal wages by 1%. Option A is incorrect because raising nominal wages by 1% would increase real wages, not lower them. Option C is incorrect because lowering real wages by 2% would require either lowering nominal wages by 2% or raising inflation by 2%. Option D is incorrect because raising inflation by 2% would increase nominal wages, not lower them.

If Inflation Is 0%, and a Firm Wants to Lower