Question

You have been given a raise. However, inflation is rising as well. 2019: $70 wage per...

You have been given a raise. However, inflation is rising as well.

2019: $70 wage per day CPI = 100

2020: $77 wage per day   CPI = 116

% increase in your nominal wages =

Increase in CPI =

When were you better off?

Why?

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Homework Answers

Answer #1

Percentage increase in nominal wage is simply the percentage increase in money wage of the person.

Using the above information,

So, % increase in nominal wage ={Increase in wage/ Wage in initial year} * 100

= {($77 - $70)/$70} * 100

= {$7/$70} * 100

= (1/10) * 100

= 10

Increase in CPI = CPI in 2020 - CPI in 2019

= 116 - 100

= 16

Since, Increase in CPI (16) is greater than % increase in wage (10). So I was better off earlier in 2019.

Because CPI rises at a faster rate than than the percentage increase in nominal wage so purchasing power of my wage declines as I am not able to cover up for Inflation by the increase in wage.

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