Sunita currently earns a week is $10.00 per hour times the number of hours she w

Question

Sunita currently earns a week is $10.00 per hour times the number of hours she works. Suppose the price of milk is $2.50 per gallon; in this case, Sunita's wage of $10.00 per hour; in other words, the amount of her paycheck each wage, in terms of the amount of milk she can buy with her paycheck, is of milk per hour When workers and firms negotiate compensation packages, they have expectations about the price level (and changes in the price level) and agree on a turns out to be lower than expected, a worker's employer expected when they agreed to the wage. wage with those expectations in mind. If the price level wage is than both the worker and Sunita and her employer both expected inflation to be 4% between 2010 and 2011, so they agreed, in a two-year contract, that she would earn $10.00 per hour in 2010 and $10.40 per hour in 2011. However, suppose inflation between 2010 and 2011 actually turned out to be 2%, not 4%. For example, suppose the price of milk rose from $2.50 per gallon to $2.55 per gallon. This means that between 2010 and 2011, Sunita's nominal wage by and her real wage by approximately

Explanation / Answer

Ans

Nominal

Real

=10/2.5=4

Nominal

Real

Higher

Increased

By 4%

Increased

By (10.40/2.55)-(10/2.5)/10/2.5=1.96%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.