Congratulations! Your boss has given you a raise. However, you want to know whether your purchasing...
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.
|
Wage ($/day) |
CPI |
|
|
Year 1 |
$2,000 |
120 |
|
Year 2 |
$2,100 |
132.0 |
The nominal percentage 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.)
Homework Answers
The nominal percentage increase in wage:
Nominal Percentage change in wage = [(New Wage - Old Wage) / Old Wage] * 100
Nominal Percentage change in wage = [(2100 - 2000) / 2000] * 100
Nominal Percentage change in wage = 5.
Hence, nominal percentage change in wage is 5%.
Inflation rate = [(Year 2 CPI - Year 1 CPI) / Year 1 CPI] * 100
Inflation rate = [(132 - 120) / 120] * 100
Inflation rate = 10%
There is an inflation of 10%.
Real Wage = (Nominal wage / Price)
The real percentage change in wage = Nominal percentage change in wage - inflation rate.
The real percentage change in wage = 5% - 10%
The real percentage change in wage = -5%
Hence, the real percentage change in wage is -5%.
Add Answer to:
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