Question

Jackson's nominal income is $50,000 per year in Lakeview where the cost-of-living index is 200. Jackson is considering accepting a similar job and relocating to Beachland where the cost-of- living index is 210. For Jackson's income to have the same purchasing power in Beachland as $50,000 has in Lakeview, Jackson's nominal income per year in Beachland must equal:

Answer 1

Jackson's nominal income per year in Beachland is mathematically given as

nR=52,500

What is ?

Generally, the equation for Real Income is mathematically given as

$R=\frac{50000}{200}$

Therefore

R=250

In conclusion, The nominal income will be

$Real income=\frac{nR}{210}$

Therefore

$250=\frac{nR}{210}$

nR=250*210

nR=52,500

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Answer 2

For Jackson's income to have the same purchasing power in Beachland as $50,000 has in Lakeview, Jackson's nominal income per year in Beachland must equal $52,500.

What is the nominal income?

The nominal income represents Jackson's income without adjustment for inflation.

The nominal income can be compared from place to place based on the cost-of-living indices in the two places.

Data and Calculations:

                            Lakeview    Beachland

Nominal income $50,000        ?

Cost-of-living index  200          210

Nominal income in Beachland = $52,500 ($50,000 x 210/200)

Thus, Jackson needs a nominal income of $52,500 in Beachland to have the same purchasing power as in Lakeview.

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