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March 26, 2017

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Suppose in 2009 the united states congress passes a minimum wage law that increases the minimum wage (the lowest legal wage) to 7.25 per hour and has a provision that increases the minimum wage at the beginning of each year based on the CPI for the previous year.
a.) If the CPI increases 3 percent for each of the next four years (so inflation rate is 3% for each next four years), find the minimum wage for 2010 and 2011.

b.) if the CPI overstates inflation by 1%, calculate a revised minimum wage for each year 2010 to 2011 removing the CPI bias

C.) How much does the CPI bias affect the minimum wage in 2010 and 2011

  • macroeconomics - ,

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