Jane Smith is a freelance IT consultant. Her yearly wages for the years 2009 thr

Question

Jane Smith is a freelance IT consultant. Her yearly wages for the years 2009 through 2014 are listed below. An industry index for computer programmers that reports the rate of wage inflation in the industry is also included. This index has a base of 1998.

Year Wage ($ thousands) Index (1998 = 100) 2009 $165 148.3 2010 167 140.6 2011 150 120.9 2012 128 110.2 2013 120 105.3 2014 131 105.0

(a) (5 marks) Compute Jane’s real income for the period.

(b) (2 marks) Did her wages match the increase or decline in the industry?

Explanation / Answer

a) Year Wage $ Index Real income 2009 165 148.3 111.26 2010 167 140.6 118.78 2011 150 120.9 124.07 2012 128 110.2 116.15 2013 120 105.3 113.96 2014 131 105.0 124.76 1998 is base year with an index of 100. Real income in 2009 is wages in 2009 (current year) times CPI in 1998(base year)/CPI in 2009 (current year) ($165x100)/148.3=$111.26

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