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 to 126. Based on the given information, what should his new wage be?
A) $24 per hour
B) $22.50 per hour
C) $23.10 per hour
D) $24.40 per hour

Question

Quizplus · Accepted Answer

An escalator clause is a provision in a contract that allows for the adjustment of wages based on changes in the consumer price index, which is a measure of inflation. To determine Robert's new wage, we need to use the formula:
New Wage = Old Wage x (Current CPI / Base CPI)
where Old Wage is the previous year's wage, Current CPI is the most recent CPI, and Base CPI is the CPI in the year the contract was signed.
Plugging in the values, we get:
New Wage = $22 x (126/120)
New Wage = $23.10 per hour
Therefore, the correct answer is C) $23.10 per hour.

Suppose Robert Has a Wage Contract Subject to an Escalator