Suppose There Is a 5 Percent Increase in the Nominal

question 76

Multiple Choice

Suppose there is a 5 percent increase in the nominal wages of workers in an economy.The annual rate of inflation in the economy is about 2 percent.Which of the following is true in this case?

• A)Real wage would fall by about 10 percent.
• B)Real wage would increase by about 20 percent.
• C)Real wage would fall by about 25 percent.
• D)Real wage would increase by about 50 percent.
• E)Real wage would increase by about 3 percent.

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Definitions:

Production Technology

The set of processes, methods, or equipment used by firms in the production of goods or services, which affects productivity and efficiency.

Input Prices

The cost of raw materials and other inputs used in the production of goods and services. Lower input prices can increase profitability for producers.

Production Technology

The methods, processes, and equipment used to produce goods and services.

Input Prices

The costs associated with the inputs required for production, including materials, labor, and overhead expenses.