If a parent earned $20 an hour in 2000, what was the purchasing power of this wage in 1999 prices, given a 3% CPI increase?

To determine the purchasing power of a wage in terms of previous prices, we need to adjust for inflation using the Consumer Price Index (CPI). In this case, we know the hourly wage in 2000 is $20, and the CPI has increased by 3% from 1999 to 2000.

To find the purchasing power of this wage in 1999 prices, we can use the following approach: divide the nominal wage in 2000 by the inflation rate (in decimal form) that reflects the increase. A 3% increase means that the price level is 103% of what it was in 1999. Thus, to find the equivalent wage in 1999 terms, we take the current wage and adjust it for inflation:

1. Convert the inflation percentage into a multiplier: 1 + inflation rate = 1 + 0.03 = 1.03.

2. Calculate the purchasing power in 1999 prices using the formula: Purchasing Power in 1999 = Wage in 2000 / (1 + inflation rate) = $20 / 1.03 ≈ $19.42.

This calculation shows that the nominal wage of $20 in 200