If the inflation rate is 2 percent and nominal wages increase by 1 percent,what happens to real wages?
A) They rise by 1 percent.
B) They fall by 1 percent.
C) They remain constant.
D) They fall by 2 percent.
E) They rise by 3 percent.

Question

Quizplus · Accepted Answer

Real wages fall by 1 percent because the nominal wage increase (1 percent) is less than the inflation rate (2 percent), resulting in a decrease in purchasing power.

If the Inflation Rate Is 2 Percent and Nominal Wages