Given the wage in dollar per day and the CPI for years 1 and 2 how do you calculate the nominal % increase in wage and the real % increase in wage?
I am not sure what to do for this or what the formula is if any. Thank you for your help.
To calculate the nominal percentage increase in wage, you would compare the wage in year 2 to the wage in year 1 and express the difference as a percentage of the wage in year 1. Here's the formula:
Nominal % Increase in Wage = ((Wage in Year 2 - Wage in Year 1) / Wage in Year 1) * 100
To calculate the real percentage increase in wage, you need to take into account the effect of inflation by adjusting the wages for changes in the Consumer Price Index (CPI) between the two years. Here's the formula:
Real % Increase in Wage = (Nominal % Increase in Wage - CPI % Increase) / (1 + CPI % Increase) * 100
Now let's break this down step-by-step:
Step 1: Calculate the nominal % increase in wage:
- Subtract the wage in year 1 from the wage in year 2.
- Divide the result by the wage in year 1.
- Multiply the result by 100 to convert it to a percentage.
Step 2: Calculate the CPI % increase:
- Subtract the CPI in year 1 from the CPI in year 2.
- Divide the result by the CPI in year 1.
- Multiply the result by 100 to convert it to a percentage.
Step 3: Calculate the real % increase in wage:
- Subtract the CPI % increase from the nominal % increase in wage.
- Divide the result by (1 + CPI % increase).
- Multiply the result by 100 to convert it to a percentage.
By following these steps and using the appropriate formulas, you can calculate both the nominal and real percentage increases in wage given the wage in dollars per day and the CPI for years 1 and 2.