Suppose Inflation Is Expected to Be 5 Percent Next Year

question 174

Multiple Choice

Suppose inflation is expected to be 5 percent next year, and you and your employer agree to a 6 percent increase in your nominal, or monetary, wage. If inflation turns out to be 6%, what is your real wage increase?

• A) 1 percent
• B) minus 1 percent
• C) 0 percent
• D) minus 5 percent
• E) 6 percent

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Definitions:

Maturity Value

Maturity Value is the amount payable to an investor at the end of a fixed-term investment, including the principal and the interest earned.

Dollar Amount

A numerical value specifying an amount of money in terms of the dollar currency.

Phillips, Hager & North

A Canadian investment management firm, known for its mutual funds and portfolio management services.

Canadian Equity Fund

An investment fund that concentrates on equities (stocks) based in Canada.