Suppose in 2009 the United States Congress Passes a Minimum

question 221

Essay

Suppose in 2009 the United States Congress passes a minimum wage law that increases the minimum wage (the lowest legal wage) to $7.25 per hour and has a provision that increases the minimum wage at the beginning of each year based on the CPI for the previous year.
a. If the CPI increases 3 percent for each of the next four years (so that the inflation rate is 3 percent for each of the next four years), find the minimum wage for 2010, 2011, and 2012.
b. If the CPI overstates inflation by 1 percentage point, calculate a revised minimum wage for each year 2010 to 2012 removing the CPI bias.
c. How much does the CPI bias affect the minimum wage in 2010, 2011, and 2012?

---

Definitions:

Cyanosis

A bluish discoloration of the skin resulting from poor circulation or inadequate oxygenation of the blood.

Intubation

The insertion of a tube into the body, typically to provide a passageway for air to enter and exit the lungs during anesthesia or severe illness.

Trachea

The windpipe, a tube extending from the larynx towards the lungs, providing the passage of air to the respiratory system.

Larynx

The part of the respiratory tract located in the neck that houses the vocal cords and is involved in breathing, speech, and swallowing.