Adjusting Wages for the Inflation Rate


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Melissa has a choice between two jobs. The first is a job is in New York City with a salary of $90,000. The other job has a salary of $80,000 per year salary in Boise, Idaho. Let's assume that the CPI is 120 in New York, while the CPI is 100 in Boise. If Melissa wants to maximize her 'real wage', which job should she choose?

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1. Using the chart below, which statement is true regarding wages over the three year period?

2. In year one, a worker's nominal wage is $25,000, and the CPI is 100. The following year, the worker's nominal wages stay the same, but the CPI is 105. In order to calculate the worker's real wage in year two, what needs to be done?

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About This Quiz & Worksheet

How and why should inflation be considered when determining wage changes from year to year? This quiz and corresponding worksheet will test your ability to apply necessary formulas to answer questions about this topic.

Quiz and Worksheet Goals

In these assessments, you'll be tested on:

  • The application of the Consumer Price Index (CPI) to determine real wages in different parts of the country
  • How to determine real wages over a specific period
  • How to calculate real wages when a salary remains the same but the CPI changes
  • How to determine purchasing power

Skills Practiced

This worksheet and quiz will allow you to test the following skills:

  • Reading comprehension - ensure that you draw the most important information about the inflation rate
  • Critical thinking - apply relevant concepts to examine information about wages in a different light
  • Interpreting information - verify that you can read examples of how to calculate real wage and interpret them correctly
  • Problem solving - use acquired knowledge to solve wage-related practice problems

Additional Learning

To learn more about this topic, review the accompanying lesson called Adjusting Wages for the Inflation Rate. This lesson covers the following objectives:

  • Define inflation
  • Discuss Consumer Price Index
  • Explain real wage and nominal wage
  • Illustrate how to use specific formulas to determine nominal wage in various scenarios