Question:

If nominal wage increases by less than the price level, the real wage:?

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a)will increase

b)will decrease

c)may either increase or decrease

d)will diverge from labor productivity growth

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  1. b)will decrease

    Change in real wage = change in nominal wage - change in price level

    If the increase in the price level is more than the increase in nominal wage, then the change in real wage is negative, so the real wage decreases.

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