Suppose There Is a 5 Percent Increase in the Nominal

Multiple Choice

Suppose there is a 5 percent increase in the nominal wages of workers in an economy. The annual rate of inflation in the economy is about 2 percent. Which of the following is true?

A) Real wages would fall by about 10 percent.
B) Real wages would increase by about 20 percent.
C) Real wages would fall by about 25 percent.
D) Real wages would increase by about 50 percent.
E) Real wages would increase by about 3 percent.