Question

Assume you receive a 3.5% raise in your 2014 salary for 2015. In addition, suppose the CPI was 238 in 2014 and 240 in 2015. Your real wage in 2014 ____.a) increasedb) decreasedc) stayed the samed) it cannot be determined with the given information.

Answer 1

Answer: a. increased

Explanation:

Inflation rate = (CPI of second year - CPI of the first year ) / CPI of the first year

= (240 - 238) / 238

= 0.84%

Your wage increased by 3.5% which is more than inflation so your real wage increased by;

= 3.5 - 0.84

= 2.66%