The federal minimum wage was 725 an hour after it was increa

The federal minimum wage was $7.25 an hour after it was increased in 2009. In 1980, the minimum wage was $3.25 an hour. The CPI (1982–84 = 100) was 82.4 in 1980 and was 214.5 in 2009. Which of the following is true?

A) The 1980 minimum wage is about $8.46 in 2009 dollars, so the minimum wage has gone down in real terms.

B) The 1980 minimum wage is about $8.46 in 2009 dollars, so the minimum wage has gone up in real terms.

C) The 1980 minimum wage is about $1.25 in 2009 dollars, so the minimum wage has gone down in real terms.

D) The 1980 minimum wage is about $1.25 in 2009 dollars, so the minimum wage has gone up in real terms.

E) The 1980 minimum wage is about $4.50 in 2009 dollars, so the minimum wage has gone up in real terms.

Solution

Real wage = (Old wage * New CPI) / Old CPI

= (3.25 *214.5)/82.4

= $8.46

Since $8.46 > $7.25

Answer : A) The 1980 minimum wage is about $8.46 in 2009 dollars, so the minimum wage has gone down in real terms.