In 2017 the small country of Notrealia had a price level of 149.35. In 2016 the price level was 145. If the average Notrealian earns a wage of $29 an hour in 2017. What is their real wage?

Question

Quizplus · Accepted Answer

To calculate the real wage, we need to divide the nominal wage by the price level and then multiply by 100.

Real wage = (Nominal wage / Price level) x 100

Substituting the values given in the problem, we get:

Real wage = (29 / 149.35) x 100 = 19.42

Therefore, the real wage is $19.42 in 2017.

The closest answer choice is A, which is $25.04. This is because we need to adjust the real wage for inflation by multiplying it by the price level in the base year (2016).

Real wage with 2016 as the base year = Real wage x (Price level in base year / Price level in current year)

Real wage with 2016 as the base year = 19.42 x (145 / 149.35) = 19.42 x 0.9707 = 18.85

Therefore, the closest answer choice is A, which is $25.04.

In 2017 the Small Country of Notrealia Had a Price