Question

In: Economics

In 1997 the US CPI was 160 and in 2019 it was 256. The CPI has...

In 1997 the US CPI was 160 and in 2019 it was 256. The CPI has base year of 1982. Use this information for the following three questions.

27. The average annual percent rate of inflation from 1997 to 2019 was closest to

A. 1.2

B. 2.1

C. 3.1

D. 4.2

28. In 2019, the nominal minimum wage is $11. The real minimum wage increased over this period about how many percent per year?

A. 0.01

B. 0.1

C. 1.5

D. 2.1

EDIT: The nominal minimum wage in 1997 was $5 per hour.

Solutions

Expert Solution

Question 1

CPI in 2019 = 256

CPI in 1997 = 160

Time period = 22 years

Calculate the average annual percent rate of inflation -

Average = 0.021 or 2.1%

Thus,

The average annual percent rate of inflation from 1997 to 2019 was closest to 2.1%

Hence, the correct answer is the option (B).

Question 28

Year - 2019

Nominal wage = $11

Calculate the real wage -

Real wage = Nominal wage * [CPI in 2019/CPI in 1982]

Real wage = $11 * [100/256] = $4.29

The real wage in 2019 was $4.29

Year - 1997

Nominal wage = $5

Calculate the real wage -

Real wage = Nominal wage * [CPI in 1997/CPI in 1982]

Real wage = $5 * [100/160] = $3.12

The real wage in 1997 was $3.12

Calculate the annual percentage increase in real wage between 1997 and 2019 -

Annual percentage increase = 0.0145 or 1.5%

Thus,

The annual percentage increase in real wage between 1997 and 2019 was 1.5%

Hence, the correct answer is the option (c).

Rahul Sunny answered 2 years ago

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