If the Consumer Price Index (CPI)decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?
A) +$200
B) -$100
C) +$50
D) -$200
E) +$250

Question

Quizplus · Accepted Answer

The real wage is calculated by dividing the nominal wage by the CPI. In the beginning year, the real wage was $200/100 = $2. In the new year, the CPI decreased to 50, so the new real wage is $50/50 = $1. Therefore, the change in the real wage is -$1 or a decrease of $1 per hour. To convert this to the beginning year's dollars, we multiply by the original CPI of 100: -$1 x 100 = -$100. So the real wage in terms of the beginning year's dollars has decreased by $100.