Asked by Cristian Perez Lara on May 26, 2024
Verified
Bob Smith's money wages rose from $32,000 to $48,000,while the CPI rose by 50%.His real wages
A) fell by 50%.
B) stayed the same.
C) rose by 25%.
D) rose by 50%.
E) rose by 75%.
Money Wages
Wages paid to employees in terms of money, as opposed to real wages, which are wages adjusted for inflation.
Real Wages
The purchasing power of wages or income, taking into account the effects of inflation on buying power.
CPI
Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate inflation.
- Understand the procedure for determining real wages and appreciate their relevance over diverse durations.
Verified Answer
KS
Kewal Sunil KumarMay 29, 2024
Final Answer :
B
Explanation :
Bob Smith's nominal wage increased from $32,000 to $48,000, which is a 50% increase. The CPI also rose by 50%, indicating that the general price level increased by the same percentage. Since the increase in wages matches the increase in the price level, Bob's purchasing power or real wages remained the same.
Learning Objectives
- Understand the procedure for determining real wages and appreciate their relevance over diverse durations.