In 1990, a city bus driver in a small western Canadian city
earned the hourly wage rate of $12.50. In 1961 a person doing
the same job earned $1.92 per hour. In 1961, the consumer price
index, taken on a 1948 base was 129.9. In 1990 it was 646.1.
Since 1961, real wages of city bus drivers in that city have
increased by
1. about 30 percent.
2. about 0.58 1961 dollars.
3. about 2.90 1990 dollars.
4. All of the above.
Choose the correct answer.
The correct answer is 4. The price level rose 646.6/129.9
= 5 times between 1961 and 1990. The 1990 wage rate in 1961
dollars was therefore $12.50/5 = $2.50. This is 58 cents higher
than the wage received in 1961 in 1961 dollars and implies that
the real wage rate increased by 0.58/1.92 = 30.2 percent. This
58 cents in 1961 dollars equals 5 x $0.58 = $2.90 in 1990
dollars.
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