Question

In year 7, average nominal wages were $18.50 per hour and the consumer price index (CPI) was 111.00. In year 8, average nominal wages were $19.00 per hour and the CPI was 115.00. Calculate the real wage in year 8.

Answer 1

Answer:

$18.33 per hour

Explanation:

The Nominal wage of year 8   =    $19 per hour

CPI in year 8                             =    $115

CPI in year 7                             =    $111

We can calculate wage in real term by just a simple formula

Real wage of year 8 = Nominal wage/Current year CPI x Previous year CPI

Real wage of year 8 = $19/$115 x $111

Real wage of year 8 = $18.33 per hour