Question

Hene are the approrimmate plages and prie lavels in Cona clian aueage 9a18and da19 o19 $ 25.52 hte 136 9 wage #24.81/Are CPI aminal 134. al9 $eal wage in gol8 dlallauy the lo inyease in the naminal and 2019 % invrease io the geal and 2a19 flatien Seate botween (a) Calculate Tb) Calculate lage the botween (C) Calculate the setween GLCalculate the ols and o19 2o18 hlage (e) Wute dlown the Equcation for the suelatinsbip % change Pn the nominal uageand be tween the chang in the leal the inflationrate halds for Phou that the the numbes y tained in fauds Cb),c Equcation yau Aave and ld) abaue

Answer 1

5.

a.

Real wage in 2019 (in 2018 dollars):

$NominalWage*\frac{100}{136.9}=25.52*\frac{134.1}{136.9}=25$

b.

% change in nominal wage:

$\frac{25.52-24.81}{24.81}*100=2.86$

c.

% change in real wage:

$\frac{25.52*\frac{100}{136.9}-24.81*\frac{100}{134.1}}{24.81*\frac{100}{134.1}}*100=0.758$

d.

Inflation rate:

$\frac{CPI(2019)-CPI(2018)}{CPI(2018)}*100=\frac{136.9-134.1}{134.1}*100=2.08$

e.

Theoretical approximation is given as:

% change in real wage = % change in nominal wage - % inflation rate.

We have:

% change in real wage = 0.758

% change in nominal wage - % inflation rate = 2.86 - 2.08 = 0.78

Yes, they are approximately equal and relation holds.

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