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ECO - 252 Macroeconomics 7. You made $15 an hour in 2000 and today, in 2010,...

ECO - 252 Macroeconomics

7. You made $15 an hour in 2000 and today, in 2010, you make $20 an hour. The CPI for 2010 is 130 and the base year is 2000.

a. Calculate the 2000 equivalent wage rate of the $20 from 2010.

b. Calculate the 2010 equivalent wage rate of the $15 from 2000.

c. Are you better off today?

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Answer #1

Real wage in 2010=$15

1) $20 at CpI=130 will have equivalent wage=20/130*100=$15.48 because when economy gets inflated by 30% in 10 years then purchasing power of $15.48 in 2000 will have the same effect as $20 in 2010.

B) equivalent wage in 2010=15*130/100=$19.5

$19.5 in 2010 will have the same purchasing power which $15 had in 2000.

C) Since you have more purcahsing power in 2010. Thus its better today compared to 2000.

Simply purchasing power=Wage rate/CPI*100

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