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The question requires us to determine the impact of the increase in wage and
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Explanation of Solution
Real income will fall from year 1 to year 2 when wages doubled and the price index increases from 100 to 300.
An increase in price causes the
Suppose, the price index in year 1 = 100,
Price index in year 2 = 300
Wage in year 1 = $10,000
Wage in year 2 = $20,000 (double of year 1)
So, real wages will fall.
Option “b” is correct.
Chapter 15 Solutions
Krugman's Economics For The Ap® Course
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