Question

Given the money wages,if the price level in an economy increases, then the real wages will _________.

• A. increase
• B. decrease
• C. remain constant
• D. become flexible

Answer 1

Answer: (B)

decrease

Real wage refers to the proportion of wage which is spent on consumption and which decides the purchasing power in the economy. It is that part of the wage that regulates the price level in the economy and vice versa.
So if there is an increase in the price level in the economy with the same money wage, then the real wage will fall owing to a decrease in the purchasing power of money from the former situation.