W00MT.1
1. In 1988, I worked at Mr. Donut for
minimum wage, $3.35 per hour. Last I checked, the current minimum
wage here is $6.50 per hour. Has the real minimum wage increased
since 1988? Assume an inflation rate of 2.5% per year. [5 pts]
12 years have passed since 1988. To deflate $6.50 in year 2000 dollars to its real value in 1988 dollars, you should discount it by 12 years of inflation:
6.50/(1.025)^12 = 4.83, which is greater than 3.35, so yes, in real terms, the minimum wage is higher than it was in 1988.