2 The nominal wages and the CPl are given below the base yea

2. The nominal wages and the CPl are given below (the base year for CPI is 1997) Year Nominal wage rate CPI 2000 2001 12.27 124.2 13.29 128.1 a. What is the 2001 real wage rate in constant 1997 dollars? b. What is the percentage increase in the real wage from 2000 to 2001?

Solution

A)Real wage rate=Nominal wage rate*100/CPI

In year 2001 real wage at 1997 base year pricing is 13.29/128.1*(100)=$10.31

B)In year 2000, real wage rate is 12.27/124.2*(100)=$9.879

Thus %change in real wage rate=(10.31-9.897)/9.897*100=4.17298%