What is the worker's real wage in 2002?

Question

Quizplus · Accepted Answer

To find the worker's real wage in 2002, we need to adjust the nominal wage of $42,000 for inflation. Using the CPI values given in the problem, we can calculate the inflation rate from 1990 to 2002 as follows:

Inflation rate = (CPI in 2002 - CPI in 1990)/CPI in 1990
              = (180.9 - 130.7)/130.7
              = 38.5%

This tells us that prices increased by 38.5% between 1990 and 2002. To adjust the nominal wage of $42,000 for inflation, we need to divide it by (1 + inflation rate) to get the real wage:

Real wage = Nominal wage/(1 + inflation rate)
          = $42,000/(1 + 0.385)
          = $42,000/1.385
          = $30,388.46

Therefore, the worker's real wage in 2002 was $30,388.46, which is closest to option B: $23,590.

What Is the Worker's Real Wage in 2002