Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price level increases from 140 to 147. As a result,

A. The number of dollars you receive increases and the purchasing power of the dollars you receive increases.

B. The number of dollars you receive increases and the purchasing power of the dollars you receive decreases.

C. The number of dollars you receive decreases and the purchasing power of the dollars you receive increases.

D. The number of dollars you receive decreases and the purchasing power of the dollars you receive decreases.

Question

Cornelius Knapp

Business

12 November, 08:39

Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price level increases from 140 to 147. As a result,

A. The number of dollars you receive increases and the purchasing power of the dollars you receive increases.

B. The number of dollars you receive increases and the purchasing power of the dollars you receive decreases.

C. The number of dollars you receive decreases and the purchasing power of the dollars you receive increases.

D. The number of dollars you receive decreases and the purchasing power of the dollars you receive decreases.

+1

Answers (1)

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Giselle Melendez · Answer 1

B. The number of dollars you receive increases and the purchasing power of the dollars you receive decreases.

Explanation:

price inflation:

147/140 = 1.05 - -> the price level increase by 5%

The purchasing power from a dollar decrease as there was a 5% inflaiton during the period.

wages increase:

13 / 12 = 1.08333 = 8.33% - -> wages increase by 8.33%

We receive more dollars as the nominal wages increase

By comparisson, the employees real purchase power increase as the increase in wages surpassed the inflation but in nominal terms, the purchase power of each dollar it receives decrease