Question

In: Economics

Show work in Red and Explain answers. Suppose CPI is as follows in each year: Year:...

Show work in Red and Explain answers.

Suppose CPI is as follows in each year:

Year:	2007	2008	2009	2010
CPI:	100	99	125	140

Suppose in the year 2007 you are considering a job offer that pays $50,000 in 2007, plus a 10% (compounding) raise in each of the next three years.

Suppose in the year 2007 you are considering a job offer that pays $50,000 in 2007, plus a 10% (compounding) raise in each of the next three years.

What nominalsalary will you make in each year?

Year:	2007	2008	2009	2010
Nominal Salary

What will your real salary be in each year, using a 2007 base year?

Year:	2007	2008	2009	2010
Salary in 2007$

What will your real salary be in each year, using a 2009 base year?

Year:	2007	2008	2009	2010
Salary in 2010$

In what year was your real salary highest? _________
Does your answer to 4 depend on the base year selected? _________
Suppose instead your contract gave you $50,000 in 2007, plus a cost of living adjustment equal to the percentage change in CPI. Compute the nominal wage in each year.

Year:	2007	2008	2009	2010
Nominal Salary

In what years is this contract better than the original one? _________

Expert Solution

Correct Answer: year 2008

No, in both the base year, 2008 will give the highest real salary. It is due to the reason that CPI of 2008 is less than 100.

Rahul Sunny answered 2 years ago

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