A report indicated that the average real wage in manufacturing declined by 2 percent between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990?

W = $27.34

Explanation:

Given dа ta:

Percentage Decline in average income is = 2%

CPI in 1990 1.30

CPI in 2000 is 1.69

Average nominal wage is 2000 is $35

Inflation rate is given as

Inflation rate = % Change in CPI

= (1.69 / 1.3) - 1

= 1.3 - 1 = 0.3 = 30%

Real wage = Nominal wage / Price level, hence

Percentage change in real wage = % Change in (nominal wage - inflation rate)

-2% = % Change in nominal wage - 30%

% Change in nominal wage = 28%

let nominal wage in 1990 is w

W/times 1.28% = $35

solving for W = $27.34