"It is possible to have a situation where the nominal wage is rising and the price level is falling, while the real wage still decreases." The statement above is true, false, uncertain, or not enough Information? Please show your explanation
"It is possible to have a situation where the nominal wage is rising and the price level is falling, while the real wage still decreases." The statement above is true, false, uncertain, or not enough Information? Please show your explanation
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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"It is possible to have a situation where the nominal wage is rising and the
The statement above is true, false, uncertain, or not enough Information? Please show your explanation.
Transcribed Image Text:**Question: True, false, uncertain, or not enough information?**
"It is possible to have a situation where the nominal wage is rising and the price level is falling, while the real wage still decreases?" Provide an example and an explanation. (Hint: Critical Thinking)
**Analysis:**
To determine whether this statement is true, false, or uncertain, consider the definitions:
- **Nominal wage**: The wage measured in current monetary terms, not adjusted for inflation.
- **Real wage**: The purchasing power of the wage, adjusted for inflation, showing how much goods and services can be bought.
**Possible Scenario:**
- If the nominal wage increases by a small percentage, say 1%.
- The price level of goods and services also increases, but at a higher rate, for example, by 2%.
Even though the nominal wage has risen, the real wage decreases because the purchasing power has diminished due to the higher increase in prices.
**Conclusion:**
Without knowing the exact rates of nominal wage increase and the decrease in price levels, it's challenging to definitively answer whether real wages decrease. Therefore, the statement can be considered uncertain without more detailed information on the rates of change.
Further exploration of economic conditions and wage-price relationships would help clarify such a scenario.
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