Question

If you earned $10 an hour in 2005 when the cpi was 100, and you earn $11 an hour today when the cpi is 120, then your real wage rate has _____ since 2005. decreased remained the same increased 10% increased 20%

Answer 1

The student's real wage rate has decreased since 2005.

Step-by-step explanation:

To determine if the real wage rate has increased or decreased, we need to calculate the real wage rate in both years. The real wage rate is the nominal wage rate adjusted for inflation.

In 2005, when the CPI was 100, the nominal wage rate was $10 per hour. To calculate the real wage rate in 2005, we divide the nominal wage rate by the CPI and multiply by 100: real wage rate = ($10 / 100) * 100 = $10.

In the current year, when the CPI is 120, the nominal wage rate is $11 per hour. To calculate the real wage rate today, we divide the nominal wage rate by the CPI and multiply by 100: real wage rate = ($11 / 120) * 100 ≈ $9.17.

Therefore, the real wage rate has decreased since 2005.

Answer 2

When adjusted for inflation using the Consumer Price Index (CPI), your real wage rate has decreased since 2005, from $10 in 2005 to approximately $9.17 today. This indicates a loss in purchasing power despite the nominal wage increase from $10 to $11 per hour.

Step-by-step explanation:

If you earned $10 an hour in 2005 when the CPI was 100, and you earn $11 an hour today when the CPI is 120, then to determine whether your real wage rate has increased, decreased, or remained the same since 2005, you need to adjust the nominal wages to account for inflation. This adjustment is done by dividing the nominal wage by the Consumer Price Index (CPI) and multiplying by 100 to get the real wage in base-year terms. Doing the math:

• 2005 real wage: ($10 / 100) × 100 = $10
• Current real wage: ($11 / 120) × 100 = $9.17 approximately

Comparing the real wage from 2005 to today shows a decrease. The real wage rate has decreased because when adjusted for inflation, your purchasing power is lower now than it was in 2005.