Kyoko currently earns a_____(nominal or real) 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 milk is $2.50 per gallon; in this case, Kyoko's_(nominal or real) wage, in terms of the amount of milk she can buy with her paycheck, is__ gallons 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_(nominal or real) wage with those expectations in mind. If the price level turns out to be higher than expected, a worker's__(nominal or real) wage is_(higher or lower) than both the worker and employer expected when they agreed to the wage. Kyoko and her employer both expected inflation to 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 7%, not 4%. For example, suppose the price of milk rose from $2.50 per gallon to $2.68 per gallon. This means that between 2012 and 2013, Kyoko's nominal wage_(increased or decreased) by_%, and her real wage_(increased or decreased) by approximately______ (1%,2%,3%,4%,5% or 6%).

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 6P

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Kyoko currently earns a_________(nominal or real) 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 milk is $2.50 per gallon; in this case, Kyoko's_________(nominal or real) wage, in terms of the amount of milk she can buy with her paycheck, is__________ gallons 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_______(nominal or real) wage with those expectations in mind. If the price level turns out to be higher than expected, a worker's________(nominal or real) wage is_______(higher or lower) than both the worker and employer expected when they agreed to the wage.

Kyoko and her employer both expected inflation to 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 7%, not 4%. For example, suppose the price of milk rose from $2.50 per gallon to $2.68 per gallon. This means that between 2012 and 2013, Kyoko's nominal wage_______(increased or decreased) by_______%, and her real wage_________(increased or decreased) by approximately____________ (1%,2%,3%,4%,5% or 6%).

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