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Chapter 9: Problem 7

Over the past three years Rachel's money wage increased by 10 percent, and prices increased by 13 percent. Has Rachel's real wage increased, decreased, or remained stable? Explain your answer.

Short Answer

Expert verified
Rachel's real wage has decreased by 3%.

Step by step solution

01

Determine the money wage increase percentage

Rachel's money wage increased by 10%. The result can be represented by the equation \( M_{final} = M_{initial} + (0.10 * M_{initial}) \) where \( M_{initial} \) is Rachel's original wage and \( M_{final} \) is her final wage.
02

Compare it to the inflation rate

The overall inflation, or price increase, is 13% over the same period.
03

Determine the real wage

To find out how the inflation impacted Rachel's purchasing power, we can subtract the inflation rate from the wage increase. Therefore, \( Real Wage Change = Wage Increase - Inflation = 10% - 13% = -3% \)

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