Question

Assume that your nominal wage was fixed at $25 an hour, and the price of gasoline fell from $4.00 to $1.50. In this case, your real wage (in terms of gasoline) has

Answer 1

Answer:

$23.44

Explanation:

Nominal wages is $25 per hour

Decrease in the price of gasoline = ($4.00 - $1.50)/4.00

Decrease in the price of gasoline = 0.625

Decrease in the price of gasoline = 6.25%

Real wages = $25 - (6.25 % of $25)

Real wages = $25 - (6.25/100 * 25)

Real wages = $25 - $1.5625

Real wages = $23.4375

Real wages = $23.44

Thus, your real wage (in terms of gasoline) is $23.44