Chip's Chocolate Factory has an agreement with its workers to completely index the wages of its employees to inflation in the CPI. Chip's currently pays its production line workers $20 an hour and is scheduled to index their wages today. If the CPI is currently about 120 and was 100 a year ago, by how much should Chip's increase the hourly wages of its workers?

Question

Quizplus · Accepted Answer

The increase in CPI from 100 to 120 represents a 20% increase in inflation. Therefore, to index the wages by the same percentage, Chip's should increase the hourly wages by 20% of $20, which is $4.00.

Chip's Chocolate Factory Has an Agreement with Its Workers to Completely