Question
In: Economics
Is the BOLD and/or UNDERLINE CORRECT: Cho currently earns a nominal wage of $12.00 per hour;...
Is the BOLD and/or UNDERLINE CORRECT:
Cho currently earns a nominal 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 orange juice is $2.40 per gallon; in this case, Cho's real wage, in terms of the amount of orange juice she can buy with her paycheck, is 5 gallons of orange juice 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 wage with those expectations in mind. If the price level turns out to be lower than expected, a worker's real wage is lower than both the worker and employer expected when they agreed to the wage.
Cho 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 2%, not 4%. For example, suppose the price of orange juice rose from $2.40 per gallon to $2.45 per gallon. This means that between 2012 and 2013, Cho's nominal wage (increase/decrease) by, ____% and her real wage (increase/decrease) by approximately _____% .
Solutions
Rahul Sunny answered 11 months agoRelated Solutions
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times the hourly rate for any overtime hours worked in excess of 40
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