Question

Over the past year, Eli has been working very hard. His employer has taken notice and is giving Eli a 6% raise in salary. During this past year, overall prices in the economy have increased by 4%. Given this information, Eli's real wage has:a) stayed constant.b) increased by 2%.c) increased by 6%.d) decreased by 4%.

Answer 1

b) increased by 2%.

Step-by-step explanation:

If Eli has been granted a 6% raise in salary.

In addition, during the year, overall prices in the economy have increased by 4%. Given this information, Eli's real wage has increased by 2%.

The nominal rate of increase is 6% but the real rate of increase is gotten by the nominal rate minus the inflation rate

Therefore Real rate of wage increase for Eli = 6% - 4% = 2%