Question

When the CPI increases from 200 in 2016 to 210 in 2017 and the nominal wage rate is constant at​ $10 an​ hour, the real wage rate​ _______. A. is​ $10 an hour B. decreases by 5 percent C. increases to​ $15 an hour D. increases by 10 percent

Answer 1

Option (B) decreases by 5 percent

Step-by-step explanation:

When the nominal wage rate is $10 and the CPI is 200

The real wage rate

= [Nominal wage rate ÷ CPI in 2017 ] × 100

= [ $10 ÷ 210 ] × 100

= $4.76

Now,

The change in the real wage rate between 2016 and 2017

= [ ( 4.76 - $5.00 ) ÷ $5.00 ] × 100

= - 0.048 ≈ -0.05 or - 5 percent

here, negative sign means decrease

Hence,

Option (B) decreases by 5 percent