Question

Multiple choice 1. The Federal hourly minimum wage was $1.60 in 1968 and is $7.25 today....

Multiple choice

1. The Federal hourly minimum wage was $1.60 in 1968 and is $7.25 today. The Consumer Price Index was roughly 30 in 1968 and is roughly 240 today. These figures imply that the real (that is, inflation-adjusted) minimum wage:

a. is lower today than it was in 1968.

b. is higher today than it was in 1968.
c. is the same today as it was in 1968.

d. because the problem does not provide information about inflation, it is not possible to tell from the information provided.

e. because the problem does not provide information about average wages, it is not possible to tell from the information provided.

2. All of the following will cause the investment demand curve to shift to the left except:
a. firms’ expectations of future marginal revenue products of capital become more pessimistic. b. the real interest rate rises.
c. the government imposes new taxes on investment.
d. the price of steel, an input into the production of capital goods, rises.

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Homework Answers

Answer #1

Question 1

Minimum wage in 1968 = $1.60

CPI in 1968 = 30

Minimum wage today = $7.25

CPI today = 240

Real minimum wage with respect to 1968 = $7.25 * (30/240) = $0.91

The real (inflation adjusted) minimum wage is $0.91.

This implies that real minimum wage is lower today then it was in 1968.

Hence, the correct answer is the option (a).

Question 2

An increase in the price of steel that is used as an input in the production of capital goods will not impact the investment demand curve and thus would not shift it to the left.

Hence, the correct answer is the option (d).

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