Question

Congratulations! Your boss has given you a raise However, you want to know whether your purchasing power has actually increased, since inflation is rising as well. The table below gives you data for wages and the Consumer Price Index (CPI) for the last two years 120 Wage ($/day) CPI Year 1 $1.000 Year 2 Year 2 $1,150 $1,150 132.0 The nominal percentago increase in your wage is % (Round your answer to one decimal place.) The real percentage increase in your wage is %. (Round your answer to one decimal place.)

Answer 1

Solution:-

The Nominal Percentage Increase in wage:-

Nominal Percentage Increase in wage = New Wage - Old Wage / Old Wage * 100

                                                              = 1150 – 1000 / 1000 * 100

                                                              = 0.15 * 100

                                                              = 15%

Real Percentage Change in Wage:-

Real Percentage Change in Wage = Nominal Change - Inflation

                                                        = 15% - (CPI2 - CPI1 / CPI1 * 100)

                                                        = 15% - (132 – 120 / 120 * 100)

                                                        = 15% - (0.1 * 100)

                                                        = 15% - 10%

                                                        = 5%