Assume Contracts Between Workers and Employers That Call for an Increase

Multiple Choice

Assume contracts between workers and employers that call for an increase in the wage rate of 5 percent are based on an expected inflation rate of 3 percent.Should inflation actually be 6 percent, then

A) nominal wages fall by 5 percent.
B) real wages fall by 6 percent.
C) nominal wages fall by 1 percent.
D) real wages fall by 1 percent.