In year 9 average nominal wages were 2034 per hour and the c

In year 9, average nominal wages were $20.34 per hour and the consumer price index (CPI) was 117.70. In year 10, average nominal wages were $22.00 per hour and the CPI was 118.50. Calculate the real wage in year 10.

Solution

Nominal Wage of Year-10 22 Price level of Year-10 118.5 Price level of Year-9 117.7 Real wages of Year-9: Nominal wages of Year-10 / Price level of year-10 * Price level of Year-9 22 /118.50 * 117.70 = $ 21.85 per hour