Suppose Robert has a wage contract subject to an escalator clause. He earned $22 per hour last year. In the same year, the consumer price index rose from 120.0 to 126.0. Based on the given information, what should his new wage be?
A) $24 per hour
B) $23.10 per hour
C) $24.40 per hour
D) $22.50 per hour

Question

Quizplus · Accepted Answer

The consumer price index increased by 5% (from 120 to 126). Therefore, Robert's wage should also increase by 5% to maintain his purchasing power. 5% of $22 is $1.10, so his new wage should be $22 + $1.10 = $23.10 per hour.

Suppose Robert Has a Wage Contract Subject to an Escalator