Suppose There Is a 5 Percent Increase in the Nominal

question 25

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?

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

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Definitions:

Informational Cascade

A process in decision-making where individuals consecutively follow others' actions or choices ignoring their own private information.

Investment Opportunity

A chance to invest capital with the expectation of achieving a future financial return.

Full Information

A market condition where all participants have access to all relevant information, eliminating information asymmetry.

Housing Prices

Housing prices refer to the cost of purchasing residential properties, which can fluctuate based on market demand, location, size, and other factors.