Question

In: Economics

The CPI is 110 on January 1, 2018, and 114 on January 1, 2019. John’s nominal...

The CPI is 110 on January 1, 2018, and 114 on January 1, 2019. John’s nominal wage is $1,000 per month on January 1, 2018, and $1,100 per month on January 1, 2019.

  1. What is John's real wage on January 1, 2018?
  2. Use the CPI to calculate the inflation rate in 2018.
  3. What is the percentage increase in John's nominal wage from 2018 to 2019?
  4. Using the arithmetic trick, what is the approximate percentage change in John’s real wage?
  5. According to the change in John’s real wage, is he better off or worse off?

Solutions

Expert Solution

a. The real wage of Jhon on January 1, 2018 will be equal to

= nominal wage on January 1,2018/CPI × 100

= $1,000/110 × 100

= $9.09 × 100

= $909.09

So the real wage of Jhon on January 1, 2018 is equal to $909.09

(b) The inflation rate in 2018 will be equal to,

Inflation rate = (CPI in 2018 - 100)/100

Inflation rate = (110 - 100)/100

Inflation rate = 10/100

Inflation rate = 0.1 or 10%

So the inflation rate in 2018 is equal to 10% or 0.1

(c) The percentage increase in Jhon's nominal wage from 2018 to 2019 will be equal to,

= (nominal wage in 2019 - nominal wage in 2018)/nominal wage in 2018

= ($1,100 - $1,000)/$1,000

= $100/$1,000

= 0.1 or 10%

So the percentage increase in Jhon's nominal wage is equal to 10%.

(d) Let's calculate the growth rate of inflation from 2018 to 2019,

= (CPI in 2019 - CPI in 2018)/CPI in 2018

= (114 - 110)/110

= 4/110

= 0.0363 or 3.63%

So the rate of inflation from 2018 to 2019 is 3.63% and the growth rate of nominal income is 10%. So the approximate percentage change in Jhon's real income is equal to,

= percentage change in nominal income - percentage change in inflation

Please note this is just an approximation not accurate, but it will serve the purpose of ours to know whether the change in real wage is positive or negative.

= 10% - 3.63%

= 6.37%.

So the approximate increase in the jhon's real wage is equal to 6.37%.

(e) So as you can see the change in jhon's real wage is positive so the real wage of Jhon will be higher in 2019 so we can say that he is better off in 2019 due to increased real wage.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Assume that in 2018 the nominal GDP was $8,000 billion and in 2019 the nominal GDP...
Assume that in 2018 the nominal GDP was $8,000 billion and in 2019 the nominal GDP was $8,500 billion. Based on this information can we make any meaningful comparison of the economy’s performance? Would the value of automobile production in 2019 in the U.S. by a Korean auto company be counted in the U.S.’s GDP for the Year 2019? Briefly explain. If you purchased $10,000 of Google stock in 2019, would that purchase be included in GDP statistics for 2019?...
Year Bill's Nominal Income CPI 2010 $40,000 80 2011 $43,000 90 2012 $45,000 110 (a) Using...
Year Bill's Nominal Income CPI 2010 $40,000 80 2011 $43,000 90 2012 $45,000 110 (a) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2010 measured in base year dollars. Please show the work done to get your answer. (b) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2011 measured in base year dollars. Please show the work done to get your answer. (c) Using...
a) Obtain the value of nominal GDP and real GDP in 2018 and 2019 for this...
a) Obtain the value of nominal GDP and real GDP in 2018 and 2019 for this economy. Good 2018 2018 2019 2019 P18 Q18 P19 Q19 Food $1 100 $1 150 Clothing $5 200 $1 200 Household items $10 50 $3 60 Health Care $40 20 $20 30 b) Explain why looking just at the evolution of nominal GDP would make an analyst erroneously conclude that this economy has gone through a severe crisis/recession in 2015
1. The CPI is 1.00 in year one and 1.25 in year two. If the nominal...
1. The CPI is 1.00 in year one and 1.25 in year two. If the nominal wage is $20 in year one and a contract calls for the wage to be indexed to the CPI, what will be the nominal wage in year two? 2. If in the economy, business saving equals $220 billion, household saving equals $35 billion and government saving equals –$150 billion, what is the value of private saving? 3. In country Alpha with 400 million people...
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...
Assume that the index number representing the price level changes from 110 in 2018 to 120 in 2019.
Assume that the index number representing the price level changes from 110 in 2018 to 120 in 2019. Then it changes from 120 in 2019 to 130 in 2020. Is the inflation rate the same each year? Calculate and explain your answer1. Change from 2018 to 2019=2. Change from 2019 to 2020=
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face...
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face amount of $10 million. The bonds mature in 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. A. What was the issue price of the bonds? B. Prepare the journal entry to record the bond issuance. C. Prepare the journal entry to record interest on June 30, 2018,...
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face...
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face amount of $10 million. The bonds mature in 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. A. Prepare a partial balance sheet showing the bonds at December 31, assuming that Entity A had used the effective interest method from the inception. B. Why might a company utilize...
BETHESDA MINING COMPANY Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018 2019...
BETHESDA MINING COMPANY Balance Sheets as of December 31, 2018 and 2019 2018 2019 2018 2019 Assets Liabilities and Owners’ Equity   Current assets   Current liabilities     Cash $ 42,646 $ 54,402      Accounts payable $ 191,422 $ 199,111     Accounts receivable 60,781 81,139      Notes payable 86,520 138,088     Inventory 127,265 193,375             Total $ 277,942 $ 337,199       Total $ 230,692 $ 328,916   Long-term debt $ 240,000 $ 176,750   Owners’ equity      Common stock and paid-in surplus $ 215,000 $ 215,000      Accumulated retained earnings 155,597 189,495...
On January 1, 2018, Ras Alhd Corporation purchased 12% bonds dated January 1, 2018, with a...
On January 1, 2018, Ras Alhd Corporation purchased 12% bonds dated January 1, 2018, with a principal amount of OMR 120,000. The bonds mature in 2028 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. What is the price of the bonds at January 1, 2018 Select one: a. OMR 120,000 b. OMR 138,694 c. OMR 108,000 d. OMR 101,306
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT