Question

This question is related with real and nominal principle, and taken from your textbook (Table 2.2. page 41). Interpret the table clearly and logically what happens there. 1974 2007 Minimum wage per hour $2.00 $5.85 Weekly income from minimum wage $80.00 $234 Cost of standard basket of goods $47.00 $202.00 Number of basket per week. 1.70 1.16

Answer 1

Understanding from the table:

1. Minimum wage has increased by (5.85 - 2), i.e 192.5% over a period of 33 years.

2. Cost of standard basket of goods has increased by (202 - 47) i.e, 329.8% over a period of same 33 years.

Therefore it can be said that minimum wage has not increased in line with the inflation in the coy=untry, thus it has lead to decrease in purchasing power over a period of time.

This is also evident from the fact that in 1974 a person can buy 1.7 number of basket of goods while same person can only buy 1.16 number of basket of goods in 2007.

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