A worker's nominal wage rises by 3 percent while prices rise by 5 percent. What happens to the real wage?
Answer and explanation
Correct answer: D. It falls by about 2 percent
- Step 1: The real wage compares the wage with the price level. Step 2. 3 percent minus 5 percent is about minus 2 percent. Answer: it falls by about 2 percent. Why not the others: these signs or sizes are wrong.
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