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