Answer:
Scenario 1: Suppose all prices and salaries rise by 5% (as expected) over the course of the year. In the following table, find Eleanor's and Darnell's new salaries after the 5% increase, and then calculate the $58 payment as a percentage of their new salaries.
Eleanor's new salary = $200 x 1.05 = $210
Darnell's new salary = $100 x 1.05 = $105
the $58 payment represents:
$58 / $210 = 27.62% of Eleanor's new salary
$58 / $105 = 55.24% of Darnell's new salary
Scenario 2: Consider an unanticipated increase in the rate of inflation. The rise in prices and salaries turns out to be 14% over the course of the year rather than 5%. In the following table, find Eleanor's and Darnell's new salaries after the 14% increase, and then calculate the $58 payment as a percentage of their new salaries.
Eleanor's new salary = $200 x 1.14 = $228
Darnell's new salary = $100 x 1.14 = $114
the $58 payment represents:
$58 / $228 = 25.44% of Eleanor's new salary
$58 / $114 = 50.88% of Darnell's new salary
An unanticipated increase in the rate of inflation benefits <u>Darnell</u> and harms <u>Eleanor</u>.
