Yuestion 23 Your boss gives you an increase in the number of dollars you carn per hour. This increase in pay makes (1) your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. (2) your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. 3) your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. 4.

The correct answer is: **1) Your nominal wage increases. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.** ### Explanation: - **Nominal Wage:** This is the amount you earn in current dollars per hour, without any adjustment for inflation. An increase in your hourly pay directly raises your nominal wage. - **Real Wage:** This adjusts your nominal wage for changes in the price level (inflation). It reflects the purchasing power of your earnings. - **Scenario Analysis:** - **If your nominal wage increases by a greater percentage than the price level (inflation):** - Your purchasing power increases because your earnings are growing faster than prices. - **Result:** Your **real wage** increases. - **If your nominal wage increases by the same percentage as the price level:** - Your purchasing power remains unchanged. - **Result:** Your **real wage** remains the same. - **If your nominal wage increases by a smaller percentage than the price level:** - Your purchasing power decreases because prices are rising faster than your earnings. - **Result:** Your **real wage** decreases. ### Why Other Options Are Incorrect: - **Option 2:** Suggests that an increase in real wage directly causes an increase in nominal wage, which is not necessarily true. The relationship depends on inflation rates. - **Option 3:** Contradicts itself by stating that real wage decreased while nominal wage decreased, which doesn't align logically. - **Option 4:** Incorrectly states that if nominal wage increases faster than the price level, real wage decreases, which is the opposite of what actually happens. ### Key Takeaway: An increase in your nominal wage improves your real wage **only if** the percentage increase in nominal wage surpasses the rate of inflation. Otherwise, your purchasing power may not improve or could even decline. **Answer:** Option 1 is correct. An increase in nominal wage above inflation also raises your real wage.