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

Year	Annual Inflation Rate (percent)	Annual Nominal Wage Growth (percent)	Annual Real Wage Growth (percent)
2008	3.84%	0.33%	%
2009	– 0.36	– 1.20
2010	1.64	– 0.74
2011	3.16	1.37
2012	2.07	2.68
2013	1.46	2.23

b. Of the years listed above, the paycheck of the average worker declined in  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

Answer 1

Solution:-

(A). Annual real wage growth = Annual nominal wage growth - Annual inflation rate

Based on above identity, following is the complete table -

Year	Annual Inflation Rate	Annual Nominal Wage Growth	Annual Real Wage Growth
2008	3.84	0.33	-3.51
2009	-0.36	-1.20	-0.84
2010	1.64	-0.74	-2.38
2011	3.16	1.37	-1.79
2012	2.07	2.68	0.61
2013	1.46	2.23	0.77

(B). the annual nominal wage growth is negative in 2009 and 2010.

Hence, the pay check of the average worker declined in 2 of the six years.

(C). the annual real wage growth is negative in 2008, 2009, 2010, and 2011.

Hence, the purchasing power of the average worker declined in 4 of the six years.

(D). Average real income of the worker increases when the nominal wage growth is higher than the inflation rate.