ECONOMICS (CBSE/UGC NET)

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ECONOMICS

BUSINESS CYCLES

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
If a worker receives a raise in their nominal wage from $10 to $15 per hour at the same time that price level doubles, the worker’s real wage has approximately
A
increased by 50%
B
increased by 100%
C
decreased by 50%
D
decreased by 33%
E
stayed the same
Explanation: 

Detailed explanation-1: -Real wages rise when nominal wages rise faster than the rate of inflation. So for example, if in a given year, nominal wages increase by 4 percent and consumer prices rise by 2 percent, then real wages will have grown by 2 percent.

Detailed explanation-2: -Real Wage=Nominal Wage−(Nominal WagexInflation Rate) Real Wage = Nominal Wage − ( Nominal Wage x Inflation Rate )

Detailed explanation-3: -Real Wage Rate: The average hourly wage rate measured in the dollars of a given reference base period. It shows that the quantity of goods and services that an hour work can buy. Real wage rate = (Nominal wage rate in current year/ CPI in current year) x 100%.

Detailed explanation-4: -If workers’ nominal wages have risen by 50% over a 10 years and prices have increased by 40% in that same period, then we can safely conclude that the amount of goods and services workers can buy has: decreased in quality.

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