In Las Vegas,the cost of living index is 110,and in San Francisco,it is 170.You work in Las Vegas currently and your salary is $57,000.You are offered a promotion and pay raise of $70,000 to move to San Francisco.If you take the promotion
A) your nominal wage and your real wage have increased.
B) your nominal wage increased but your real wage has decreased.
C) your nominal wage decreased but your real wage has increased.
D) both your nominal and real wage have decreased.
E) your real wage remained constant even though your nominal wage rose.

Question

Quizplus · Accepted Answer

To determine the real wage, we need to adjust the nominal wage for the cost of living. The cost of living index in San Francisco is 170, which is higher than in Las Vegas (110). This means that prices of goods and services are 54.5% higher in San Francisco than in Las Vegas (170/110 = 1.545).

To calculate the real wage in San Francisco, we need to divide the nominal wage by the cost of living index and multiply by 100:

Real wage in San Francisco = (Nominal wage in San Francisco / Cost of living index in San Francisco) * 100
Real wage in San Francisco = ($70,000 / 170) * 100
Real wage in San Francisco = $41,176.47

Comparing the real wage in San Francisco to the real wage in Las Vegas ($57,000 / 110 * 100 = $51,818.18), we can see that the real wage has decreased by moving to San Francisco. Therefore, the answer is B: your nominal wage increased but your real wage has decreased.

In Las Vegas,the Cost of Living Index Is 110,and in San