Question

A report indicated that the average real wage in manufacturing declined by 2 percent between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990?

Answer 1

To find the average nominal wage in manufacturing in 1990, calculate the inflation-adjusted wage using the CPI. The average nominal wage in manufacturing in 1990 was approximately $35.

Step-by-step explanation:

To find the average nominal wage in manufacturing in 1990, we need to calculate the inflation-adjusted wage using the Consumer Price Index (CPI). First, we can calculate the inflation rate by dividing the CPI in 2000 (1.69) by the CPI in 1990 (1.30). This gives us an inflation rate of approximately 1.3 (1.69 / 1.30).

Next, we can calculate the real wage in 2000 by multiplying the average nominal wage in 2000 ($35) by the inflation rate (1.3). This gives us a real wage of approximately $45.5 (35 * 1.3).

Finally, to find the average nominal wage in 1990, we need to adjust the real wage in 2000 for inflation. We divide the real wage in 2000 ($45.5) by the inflation rate (1.3). This gives us an average nominal wage in 1990 of approximately $35 (45.5 / 1.3).

Answer 2

W = $27.34

Step-by-step explanation:

Given data:

Percentage Decline in average income is = 2%

CPI in 1990 1.30

CPI in 2000 is 1.69

Average nominal wage is 2000 is $35

Inflation rate is given as

Inflation rate = % Change in CPI

= (1.69 / 1.3) - 1

= 1.3 - 1 = 0.3 = 30%

Real wage = Nominal wage / Price level, hence

Percentage change in real wage = % Change in (nominal wage - inflation rate)

-2% = % Change in nominal wage - 30%

% Change in nominal wage = 28%

let nominal wage in 1990 is w

W\times 1.28% = $35

solving for W = $27.34