A labor contract provides for a first-year wage of $15 per hour, and specifies that the real wage will rise by 2 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.09 in the second year. What dollar wage must be paid in the second year?
A) $15.30
B) $16.09
C) $16.65
D) $16.68

Question

Quizplus · Accepted Answer

To maintain a 2% increase in real wage, the nominal wage must account for inflation. The real wage increase is 2%, so the nominal wage must increase by (1.02 * 1.09) times the first-year wage. $15 * 1.02 * 1.09 = $16.68.

A Labor Contract Provides for a First-Year Wage of $15