A report indicated that the average real wage in manufacturing declined by 2 percent between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990?
A)$21.13
B)$26.40
C)$26.92
D)$27.47

Question

Quizplus · Accepted Answer

The real wage in 2000 was $20.71($35/1.69). This real wage is 98 percent, or (0.98), of the real wage in 1990. So the real wage 2000 = real wage 1990 × 0.98, or 20.71 = real age 1990 × 0.98. We solve for the real wage in 1990, by dividing each side with 0.98: $20.71/0.98 = 21.13. Finally we can obtain the nominal wage for 1990 by multiplying the real wage in 1990 with the CPI in 1990: 21.13 × 1.3 = $27.47.

A Report Indicated That the Average Real Wage in Manufacturing