Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield,Pennsylvania.If the consumer price index (CPI)was 18.3 in 1946 and 202.4 in 2011 and the legal minimum wage in 2011 was $7.25,then
A) Donna's inflation-adjusted wage would be greater than the legal minimum wage in 2011.
B) Donna's inflation-adjusted wage would be less than the legal minimum wage in 2011.
C) Donna's inflation-adjusted wage would be equal to the legal minimum wage in 2011.
D) Donna would suffer from money illusion in 2011 if her real wage rose,holding her nominal wage constant.
E) because of deflation in the years between 1946 and 2011,the inflation-adjusted wage would exceed the legal minimum in 2011.

Question

Quizplus · Accepted Answer

To find Donna's inflation-adjusted wage in 2011, we use the formula: (1946 wage) * (CPI in 2011 / CPI in 1946). This gives $0.30 * (202.4 / 18.3) = $3.32, which is less than the 2011 minimum wage of $7.25.

Donna Newton Made $0