A decrease in a person's real wage necessarily means _____
A) lower purchasing power.
B) lower nominal wage.
C) lower personal disposable income.
D) higher nominal wage.
E) higher personal disposable income.

Question

Quizplus · Accepted Answer

Real wage is the purchasing power of the nominal wage. A decrease in real wage would mean lower purchasing power, because the amount of goods and services that can be purchased with the nominal wage has decreased. Lower nominal wage (option B) would not necessarily result in a decrease in real wage, as it depends on the price level. Lower personal disposable income (option C) could result from a decrease in real wage, but it could also result from other factors such as changes in taxes or transfers. Higher nominal wage (option D) and higher personal disposable income (option E) are not compatible with a decrease in real wage.

A Decrease in a Person's Real Wage Necessarily Means _____