A firm agreed to pay its workers $34 an hour in 2016 and $36 an hour in 2017. The price level for these years was 241 in 2016 and 245 in 2017. What is the real wage rate in 2016 and 2017, respectively?
To calculate the real wage rate, we need to adjust the nominal wage rate (the wage rate in current dollars) for changes in the price level (inflation) using a price index.
The formula to calculate the real wage rate is:
Real Wage Rate = Nominal Wage Rate / Price Index
Let's calculate the real wage rate in 2016:
Real Wage Rate in 2016 = $34 per hour / 241 price index
Real Wage Rate in 2016 = $0.141 per hour
Now, let's calculate the real wage rate in 2017:
Real Wage Rate in 2017 = $36 per hour / 245 price index
Real Wage Rate in 2017 = $0.147 per hour
Therefore, the real wage rate in 2016 is $0.141 per hour, and the real wage rate in 2017 is $0.147 per hour.