If the inflation rate unexpectedly increases, it is likely that workers will not fully anticipate some of this sudden increase. This will tend to cause nominal wages to ________ and the belief that real wages have ________.
A) increase; increased
B) increase; decreased
C) decrease; increased
D) decrease; decreased

Question

Quizplus · Accepted Answer

When inflation unexpectedly increases, nominal wages tend to increase as workers demand higher pay to keep up with the cost of living. However, if the increase is not fully anticipated, workers might believe their real wages have increased because they see a nominal wage rise without realizing that inflation has eroded their purchasing power.

If the Inflation Rate Unexpectedly Increases, It Is Likely That