Assume that your nominal wage was fixed at $15 an hour, and the price index rose from 100 to 105. In this case, your real wage has: a. Decreased to $10 b. Increased to $15.75 c. Decreased to $14.29 d. Increased to $20

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Business

Troy

11 May, 14:16

Assume that your nominal wage was fixed at $15 an hour, and the price index rose from 100 to 105. In this case, your real wage has: a. Decreased to $10 b. Increased to $15.75 c. Decreased to $14.29 d. Increased to $20

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Gavyn Humphrey · Answer 1

The nominal wage was $15 and our and the price index was 100. When the price levels rose to 105 from 100 it means that all prices increased by 5% which means that if something cost $100 it will now cost $105. This shows that our purchasing power has fallen and we can now buy less things for the same amount of money which means that our real wage has decreased, now we need to find out the amount by which real wage has decreased. Lets assume a meal cost $15 before the change in price level and you could afford 1 meal (15/15), now the meal costs 5% more which is 15.75 (1.05*15). Now you can buy 15/15.75 = 0.952 meals which means that your real wage is now 95.2% of your nominal wage.

15*0.952=14.29

C) The real wage decreased to $14.29