a) Nominal average earnings in 2008 was $16 and the CPI was 202, while the Nominal average earnings in 2009 was $17 and the CPI was 207.
Real average wage in a year is calculated by the formula;
= (nominal wage in a year/CPI in a year) × 100
Therefore; the real wage in year 2009 will be;
=(17/207) × 100
= 0.08213 ×100
= $ 8.2
b) I believe it is evident that both the real and nominal average hourly earnings increased between year 2008 and year 2010, That is
In 2008 the Nominal wage was $16 while in 2010 it was $18, while
the real wage was $7.92 in 2008 and $8.6 in 2010. The major difference between nominal hourly wage and the real hourly wage is that real wage takes inflation (purchasing power) into consideration while nominal wage does not.
