Explain how the nominal wage rate is converted into the real wage rate. Explain why this process of conversion changes the nominal wage rate into the real wage rate
What will be an ideal response?
The real wage rate equals the nominal wage rate divided by the CPI. The nominal wage rate equals the dollars that are paid for an hour's labor. The CPI is a measure of the prices of the goods and services that the typical consumer purchases. Hence dividing the number of dollars for an hour's labor by the prices for the goods and services purchased gives, as its result, the number of goods and services that can be purchased by the hour's labor.
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Under the least squares assumptions for the multiple regression problem (zero conditional mean for the error term, all Xi and Yi being i.i.d., all Xi and ui having finite fourth moments,
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