5. Real wages , nominal wages, and unexpected changes in the price level Hilary currently earns a wage of $12.00 per hour ; In other words the amount of her paycheck each week is $12.00 per hour times the number of hours she works. Suppose the price of orange juice is $2.40 per gallon; in this case , Hilary's wage , in terms of the amount of orange juice she can buy with her paycheck, is Gallons of orange juice per hour. When workers and forms negotiate compensation packages, they have expectations about the price level ( and changes in the price level) and agree on a wage with those expectations in mind. If the price level turns out to be lower than expected ,a worker's wage is. Than both the worker and employer expected when they agreed to the wage. Hilary and her employer both expected inflation nto be 4% between 2012 and 2013, so they agreed, in a two year contract, that she would earn $12.00 per hour in 2012 and $12.48 per hour in 2013. However, suppose inflation between 2012 and 2013 actually turned out to be 2% not 4%. For example, suppose the price big orange juice rose for $2.40 per gallon to $2.45 per gallon. This means that between 2012 and 2013 ,Hilary 's nominal wage by % , and her real wage. By apparently
5. Real wages , nominal wages, and unexpected changes in the
Hilary currently earns a wage of $12.00 per hour ; In other words the amount of her paycheck each week is $12.00 per hour times the number of hours she works. Suppose the price of orange juice is $2.40 per gallon; in this case , Hilary's wage , in terms of the amount of orange juice she can buy with her paycheck, is Gallons of orange juice per hour.
When workers and forms negotiate compensation packages, they have expectations about the price level ( and changes in the price level) and agree on a wage with those expectations in mind. If the price level turns out to be lower than expected ,a worker's wage is. Than both the worker and employer expected when they agreed to the wage.
Hilary and her employer both expected inflation nto be 4% between 2012 and 2013, so they agreed, in a two year contract, that she would earn $12.00 per hour in 2012 and $12.48 per hour in 2013. However, suppose inflation between 2012 and 2013 actually turned out to be 2% not 4%. For example, suppose the price big orange juice rose for $2.40 per gallon to $2.45 per gallon. This means that between 2012 and 2013 ,Hilary 's nominal wage by % , and her real wage. By apparently .
Inflation is a reduction in the purchasing power of a currency due to a sudden rise in prices over a period of time.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
