Between 1991 and 2008, the federal minimum wage increased from $4.25 per hour to $6.55 per hour, while the CPI increased from 136.2 to 215.3. We can conclude from this that
A) the minimum wage increased in nominal and in real terms.
B) the minimum wage decreased in nominal terms but increased in real terms.
C) the minimum wage increased in nominal terms but decreased in real terms.
D) more information is needed to determine what happened to the real minimum wage over the period.

Question

Quizplus · Accepted Answer

The minimum wage increased in nominal terms, from $4.25 to $6.55 per hour, but the CPI also increased, from 136.2 to 215.3. To determine the real minimum wage, we can divide the nominal minimum wage by the CPI. When we do this, we see that the real minimum wage in 1991 was $4.25/136.2 = 0.0312, and the real minimum wage in 2008 was $6.55/215.3 = 0.0304. Thus, the real minimum wage decreased from $0.0312 to $0.0304 over the period, indicating that the minimum wage increased in nominal terms but decreased in real terms.

Between 1991 and 2008, the Federal Minimum Wage Increased from $4.25