Question

In year 1 the CPI is 140, and in year 2 the CPI is 154. From year 1 to year 2, Maria's salary rises from $43,000 to $48,000, and Daisy's salary rises from $65,000 to $70,000. Who is "more than keeping up with inflation"?

Answer 1

Answer:

Maria is more keeping up with inflation because her salary has increased by a percentage rate (12%) that is higher that the inflation rate (10%)

Explanation:

To determine who is keeping up with inflation more, we would compare the percentage in the salaries to the inflation rate

Inflation rate = (CP1 in year 2/CPI in year 1) × 100

                       = (154/140) × 100

                           = 10%

Change in salary =

(Current salary - previous salary)/previous salary× 100

Maria

                      = (48,000 - 43,000)/43,000 × 100

                        = 12%

Daisy's

                     = (70,000- 65,000)/65,000× 100

                       = 8%

Maria is more keeping up with inflation because her salary has increased by a percentage rate (12%) that is higher that the inflation rate (10%)

Answer 2

Answer:

Who is "more than keeping up with inflation"?

• Maria

Explanation:

the person who is more than keeping up with inflation is the one that has the highest salary raise between years 1 and 2. We must first determine the real salaries of year 1 and 2, and then determine how much they increased:

                Maria's nominal salary           Maria's real salary         % change

Year 1           $43,000                   =$43,000/1.4 = $30,714.29

Year 2          $48,000                   =$48,000/1.54 = $31,168.83      1.45%

                Daisy's nominal salary           Maria's real salary         % change

Year 1          $65,000                   =$65,000/1.4 = $46,428.57

Year 2         $70,000                   =$70,000/1.54 = $45,454.55      -2.1%

Maria actually got a 1.45% increase in her real wage, while Daisy lost money, since her real wage decreased by 2.1%.