Question

The table below shows the annual change in the average nominal wage and inflation rate since 2008. a. Compute the percentage change in real income for each year shown in the table. Instructions: In part a, round your answers to two decimal places. In parts b and c, enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Percentage Changes in Nominal Income and Prices Annual Inflation Rate (percent) 3.78% Annual Nominal Wage Growth (percent) 0.31% -1.10 Year 2008 2009 2010 2011 2012 2013 -0.39 1.60 3.09 2.02 1.42 -0.69 Annual Real Wage Growth (percent) -3.47 % -1.49 -2.29 -1.82 0.44 0.65 1.27 2.46 2.07 b. Of the years listed above, the paycheck of the average worker declined in 4 of the six years. c. Of the years listed above, the purchasing power of the average worker declined in of the six years. d. The average real income of households can increase Click to select) UUUUUUUUUUUUUUUUUUUUUUUUUUUUUU

Answer 1

A) annual growth rate in the real wage rate is the difference between the growth rate of nominal wage and growth rate of price level which is called inflation. In 2010, for example the annual nominal wage growth rate is -0.69 and the annual inflation rate is 1.60. this gives the annual real wage growth rate = -0.69-1.60 = - 2.29. the table is correctly filled

B) paycheck means nominal wage. This is positive in 4 years and negative in 2 years. Hence the paycheck declined in 2 of the six years

C) purchasing power means real wage rate. It declined in 4 years because the real wage growth rate is negative in first four years

D) average real income of the household can increase when increase in the nominal wage growth rate is greater than the inflation rate.