Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your A. nominal wage is higher. B. nominal wage is lower. C. real wage is higher. D. real wage is lower.

When the price level rises but your hourly dollar pay remains unchanged, your purchasing power—what your wages can actually buy—declines. This distinction hinges on understanding two key concepts: nominal wage and real wage.

Nominal wage refers to the actual dollar amount you earn per hour, unadjusted for inflation. Since the problem states "the number of dollars you are paid per hour stays the same," your nominal wage is unchanged. This eliminates options A (nominal wage higher) and B (nominal wage lower), as neither describes a change in the dollar amount received.

Real wage, by contrast, measures the purchasing power of your wages after accounting for inflation (rising prices). It is calculated as nominal wage divided by the price level. When prices rise (denominator increases) while nominal wage stays constant (numerator unchanged), the real wage decreases. For example, if you earn \(20/hour (nominal wage) and a loaf of bread costs \)5, your wage buys 4 loaves. If bread rises to \(10 (price level increase) but your wage stays \)20, you can now only buy 2 loaves—your real wage has halved.

Thus, the rising price level erodes the purchasing power of your fixed nominal wage, resulting in a lower real wage.

Answer: D