If real salaries increase but nominal salaries do not, this means that:

Question

BlackTom AI · Accepted Answer

To unpack the statement, we need to distinguish real vs nominal salaries. Real salaries refer to what money can actually buy, adjusting for price levels, while nominal salaries are the face values of pay without accounting for inflation or deflation.
Option 1: 'prices have risen.' If prices rose while nominal salaries stayed the same, real salaries would fall, not rise. So this option contradicts the condition that real salaries increase.
Option 2: 'prices have not changed.' If prices were unchanged and nominal salaries did not rise, real salaries would stay the same. That would not explain an increase in real salaries, so this is incorrect.
Option 3: 'prices have fallen.' This aligns with the given scenario: if real salaries increase while nominal salaries stay the same, the decrease in the price level (deflation) raises purchasing power, making real salaries higher. This option correctly explains the situation.
Option 4: 'the purchasing power of money has decreased.' A decrease in purchasing power would accompany rising price levels (inflation) or at least no increase in real wages; it contradicts the premise that real salaries increase. Hence this is incorrect.

econ_102_120251_245827 Lesson 2 Graded Quiz

If real salaries increase but nominal salaries do not, this means that:

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