If you earned $10-an-hour in 2005 when the cpi was 100, and you earn $11-an-hour today when the cpi is 120, then your real wage rate has _____ since 2005.

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22-11-2016
Business

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If you earned $10-an-hour in 2005 when the cpi was 100, and you earn $11-an-hour today when the cpi is 120, then your real wage rate has _____ since 2005.

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The consumer price index, or cpi, has the following formula:

[tex]CPI = \frac{Current \ Period \ Price}{Base \ Period \ Price} \ x \ 100[/tex]

Let's compute the real base period price for the cpi today.

[tex]120 = \frac{11}{Base \ Period \ Price} \ x \ 100[/tex]

Base Period Price = $9.2

Then, we compare the apparent with the real:

Real Base Period: $11 - $9.2 = $1.8
Apparent Base Period: $11 - $10 = $1

Real > Apparent, thus your real wage rate has increased since 2005.