If the price level rises by 4 percent in a year and nominal wages increase by 2 percent, then real wages will
A)decrease by 6 percent.
B)decrease by 4 percent.
C)decrease by 2 percent.
D)increase by 2 percent.

Question

Quizplus · Accepted Answer

Real wages adjust for inflation, so if nominal wages increase by 2% but prices increase by 4%, real wages effectively decrease by 2% because the purchasing power of those wages has decreased.

If the Price Level Rises by 4 Percent in a Year