Other things constant, which of the following is inversely related to inflation?
A) nominal wage only
B) real wage only
C) average price level in the economy
D) both nominal wage and real wage

Question

Quizplus · Accepted Answer

Real wage is inversely related to inflation. As inflation increases, the purchasing power of a given nominal wage decreases, causing a decline in the real wage (the actual amount of goods and services that can be purchased with a given wage). On the other hand, nominal wage (A) may increase with inflation, thus it is not inversely related to inflation. Finally, the average price level in the economy (C) is directly related to inflation, not inversely related. Therefore, D is also an incorrect answer.

Other Things Constant, Which of the Following Is Inversely Related