# Extra solved problem 16 1 determining real wage

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Extra Solved Problem 16-1Determining Real Wage GrowthDetermine the real wage and the growth rate in the real wage for the years from 2001 to 2004. Nominal wage and price data are given in the table below:YearWageCPI200014.32172.2200114.76177.1200215.29179.9200315.74184.0200416.15188.9SOLVING THE PROBLEM:Step 1: Review the chapter material.
This problem is about calculating real wage rates, so you may want to review the section “The Discovery of the Short-Run Trade-off Between Unemployment and Inflation,” which begins on page 974 in the textbook.Step 2: Describe how the real wage is calculated.
Step 3: Describe how the growth rate in the real wage rate is calculated.
Extra Solved Problem 16-1The Policy Menu View of the Phillips Curve In 1960, Paul Samuelson and Robert Solow wrote the first article to use the Phillips curve model to explain the relationship between unemployment and inflation in the United States. They concluded that:[P]rice stability is seen to involve about 5 1/2 percent unemployment; whereas3 percent unemployment is seen to involve a price rise of about 4 1/2 percent per annum. We rather expect that the tug of war of politics will end us up in the next few years somewhere in between these selected points.Source: Paul A. Samuelson and Robert M. Solow, “Analytical Aspects of Anti-Inflation Policy,” American Economic Review,Vol. 50, No. 2 (May 1960), pp. 192–193.What did Samuelson and Solow mean by “price stability”? What does the “tug of war of politics” have to do with what happens to the unemployment and inflation rates?SOLVING THE PROBLEM:Step 1: Review the chapter material.
Step 2: Explain what is meant by “price stability.”