Valerie's paycheck each week is $10 per hour times the number of hours she works. Valerie thus currently earns a, wage of $10 per hour. Suppose the price of apple juice is $2.50 per gallon. The amount of apple juice she can buy with her paycheck is of apple juice, which represents her- wage. When workers and firms negotiate compensation packages, they have expectations about the price level (and changes in the price level) and agree on wage with those expectations in mind. If the price level turns out to be higher than expected, a worker's wage is than both the worker and employer expected when they agreed to the wage. Suppose that Valerie and her employer both expected inflation to be 4% between 2011 and 2012. They signed a two-year contract stipulating that Valerie would earn $10 per hour in 2011 and $10.40 per hour in 2012. However, actual inflation between 2011 and 2012 turned out to be 5% rather than the expected 4%. For example, suppose the price of apple juice rose from $2.50 per gallon to $2.63 per gallon. This means that between 2011 and 2012, Valerie's nominal wage by . and her real wage by approximately

Valerie's paycheck each week is $10 per hour times the number of hours she works. Valerie thus currently earns a, wage of $10 per hour. Suppose the price of apple juice is $2.50 per gallon. The amount of apple juice she can buy with her paycheck is of apple juice, which represents her- wage. When workers and firms negotiate compensation packages, they have expectations about the price level (and changes in the price level) and agree on wage with those expectations in mind. If the price level turns out to be higher than expected, a worker's wage is than both the worker and employer expected when they agreed to the wage. Suppose that Valerie and her employer both expected inflation to be 4% between 2011 and 2012. They signed a two-year contract stipulating that Valerie would earn $10 per hour in 2011 and $10.40 per hour in 2012. However, actual inflation between 2011 and 2012 turned out to be 5% rather than the expected 4%. For example, suppose the price of apple juice rose from $2.50 per gallon to $2.63 per gallon. This means that between 2011 and 2012, Valerie's nominal wage by . and her real wage by approximately

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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