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

$18.33 per hour

Step-by-step 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