Question

James smith makes 65,000 per year as an editor for a publisher. He was notified of a 1.5% raise in a year in which the CPI increased by 4%. find the gain or loss in his purchasing power. showwork

Answer 1

Answer:

loss = - 672.3 ....

explanation

According to the given statement John was notified of a 3.3% raise in a year. It shows the income increases.

Raise in a year = 3.3% =0.033

Raise = old income * 0.033 = 63,800*0.033 =$ 2105.4

New income = $63,800 + $ 2105.4 = $65905.4

Now the statements states that CPI index increased by 4.4%

Then,

the price index of previous year = 100

and the price index of this year = 100+4.4 = 104.4

100/104.4 = x/65905.4

By cross multiplication:

x = 65905.4 × 100 / 104.4

x=63127.7

Therefore the change in his purchasing power is   $63127.7 - $63,800

= - 672.3

The answer contains negative sign which shows loss in purchasing power

Hence loss = - 672.3 ....