Question

The International Disc Jockey's Union has a wage contract that stipulates a yearly wage increase based on the Consumer Price Index. If this year's wage is $ 28.00 , the current CPI is 180 , and the contract was first signed in the base year, what was the original salary the first year of the contract? Round your answer to two decimals. original salary: $

Answer 1

Answer:

Salary in base year = $15.56

Explanation:

Consumer Price Index(CPI ): This is the weighted average price of a basket of goods and services consumed by a typical consumer. It is used to measure the rate of inflation.

The increase in the CPI is taken to be the rate of inflation. For example, if the CPI rose to 110 from 100, this implies an inflation rate of 10% within the time period in focus.

To preserve the purchasing power of workers income, employment contracts  usually allow for wages and salaries to be adjusted for inflation.

The wage or salary in the current year is $28, this figure can be adjusted for using the CPI to arrive at the wage in the base year (i.e salary before the inflation). This is done as follows:

Salary in the base year

= Salary in the current year× (CPI base year/ CP1 in current year)

The CPI in the base year is taken to be 100

Salary in base year = 100/180× 28

                               = $15.56