Objectivism Online Forum

# Real Wage and Purchasing Power

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Year       Wage        CPI

2011    \$18,000     120.73

2017    \$56,000     232.15

With the above data, can you calculate the Purchasing Power of the worker as a result of an increase in wage from 18,000 to 56000? And also give interpretation of the result.

Thank you in advance.

Edited by Keveen Efe
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Is this for a school project or assignment?

I would hesitate to just hand out the answer.

First ask yourself what IS purchasing power?  What units would you use to even quantify such a thing?

Next think about what CPI is and what is the consequence of prices increasing per dollar... how is this related to purchasing power as you defined it above.  Can you quantify a change in purchasing power per dollar (as a ratio)?

Finally, given your conclusions thus far regarding purchasing power per dollar... what does the increase in wage mean (proportionally speaking)?

So, in conclusion, what is the Purchasing power of the worker in 2017 versus 2011 given both changes in CPI and wage (expressed as a ratio)?

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That \$18,000 figure for 2011 is definitely not correct. (And if we're talking Nigeria, I seriously doubt that either figure is correct.)

It would also be a good thing to think about the premises behind the CPI and ask whether it is a useful or even accurate measure of whatever it is supposed to measure.

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