tions saved Question 8 1 point If inflation is 3 but wages r

tions saved Question 8 (1 point) If inflation is 3% but wages rise by 5% and there are no additional inflationary expectations, what is the rate of increase in labor productivity? a) 8% 6 b) 3% O c) 2% d) 5% 12 Save n 7 Saved

Solution

Answer is c. 2% Explanation: Let Initial Nominal wage = 100 Price level = 100 Initial Productivity = 100 Revised, Nominal = 100+5% =105 Price level =100+3% =103 Productivity: 105 / 103 * 100 = 101.94 Increase in productivity = 1.94% or 2% approx.