Inflation Is Occurring in a Nation; the Implication(s) of This

question 48

Multiple Choice

Inflation is occurring in a nation; the implication(s) of this is/are:

• A) both real and nominal wages are rising.
• B) both real and nominal wages are falling.
• C) almost none, because most wages increase at about the same rate as inflation.
• D) holding nominal wages constant, the real wage would rise.
• E) holding nominal wages constant, the real wage would fall.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Substitution Price Elasticity

A measure of how much the quantity demanded of one good responds to a change in the price of another good, indicating the degree to which these goods are substitutes.

Utility Function

A numerical model that explains how a consumer gains pleasure or usefulness from using goods and services.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, holding the consumer's utility level constant.