2000 2002 2012 Average Weekly Wage $300 $320 $400 CPI 131 140 167 According to t
ID: 1193588 • Letter: 2
Question
2000
2002
2012
Average Weekly Wage
$300
$320
$400
CPI
131
140
167
According to the data below, please show the percentage change:
(a) How did nominal wages change between 2000 and 2002?
(b) How did real wages (using 2000’s CPI as base) change between 2000 and 2002?
(c) How did real wages (using 2000’s CPI as base) change between 2000 and 2012?
Compute percentage changes. Check my answers please
a) (($320-$300)/$300=0.066 or increased by 6.6%
b) Since 2000 is the base year $300 is nominal and real wage
2002: ($320/140)*100=$228.57 is the real wage
(($228.57-$300)/300=-.238 so real wage decreased by 24%
c) Since 2000 is the base year $300 is nominal and real wage
2012:$400/1.67=$239.52
(($239.52-$300)/300=-.20 so real wage decreased by 20%
2000
2002
2012
Average Weekly Wage
$300
$320
$400
CPI
131
140
167
Explanation / Answer
a.
Change in nominal wage (weekly basis) = (wage in 2002 – wage in 2000)/wage in 2000
Change in nominal wage (weekly basis) = (320-300)/300
Change in nominal wage (weekly basis) = .06666 = 6.67 % (increase)
(Your first answer is verified and correct)
b.
In year 2000, CPI is 131 and it is a base for real wages
Thus,
In 2000, Real wage = nominal wage = (300/131)*131 = $300
In 2002, Real wage will be different from nominal wage because CPI changes
In 2002, Real wage= (nominal wage in 2002/CPI in 2002)*CPI in 2000 = 320*131/140
In 2002, Real wage= $299.43
Thus, in 2002, real wage has come down to $299.43 from $300 of 2000.
Change in real wage = (299.43 – 300) / 300 = -.19% (negative)
(Your answer given in the question is checked and that is not correct)
C.
Real wage in 2012 = (nominal wage in 2012/CPI in 2012)*CPI in 2000 = 400*131/167
Real wage in 2012 = $313.78
Increase in real wage between 2012 and 2000 = 313.78 – 300 = $13.78
% change in real wage between 2000 and 2012 = (313.78 – 300)/300 = 4.593% increase
(Your answer given in the question is checked and that is not correct)
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