Question

Suppose Specific Automakers is considering signing a long-term contract with the union representing its workers. Specific Automakers and the union both agree that real wages should increase by 2%. Inflation is expected to be 3%, so they agree on a 5% nominal wage increase. Now, suppose inflation turns out to be higher than expected, coming in at 4%. This wouldharm the union and Specific Automakers because the real wage increase would now be .

Answer 1

This would harm the union specific Automakers because when Inflation is directly proportional to the workers salary. This means that since inflation increases therefore the wages would also increase,

now
`(5)/(2) =2.5\\also 3X2.5=7.5%`

now minimal wage =7.5% at 3% inflation rate

Explanation:

First we divide the inflation rate by the minimal wage percentage.

secondly we multiply the result above by the new inflation rate that would give us the new minimal wage percentage