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Compute of real and nominal wages, changes on real also nominal salary, comparison of wages at different years and decision making on employment options.

Real Changes in Wages

Pam, having recently graduated from college, is looking to work for 2 years before she enters

graduate school. She has received 2 job offers with the following salary structures:

JOB A: Pays $30,000 in 2003 and $40,000 in 2004

JOB B: Pays $30,000 in 2003 and 2004's salary will be equal to $30,000 plus a cost of living

adjustment equal to the inflation rate.

Suppose the increase in the price level (i.e. the inflation rate) is 35% from 2003 to 2004.

Suppose Pam has no preference for either job, other than the highest salary.

Suppose the CPI for 2003 is 200, while the CPI for 2004 is 270. Deflate the 2004 salary for

JOB A to determine how much the salary is worth in terms of 2003 dollars (you may need to

round to the nearest cent)?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M919801

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