Asked by Satveer Sidhu on Apr 28, 2024
Verified
The CPI increased from 125.0 to 132.0 over a three-year period. If a person earned $40,000 at the beginning of the three-year period, how much would they have to earn at the end of the three-year period to maintain the same purchasing power?
A) $42,800
B) $42,240
C) $40,933
D) $42,121
E) $40,250
Purchasing Power
How much a single unit of money can purchase in terms of goods or services, indicating the currency's value.
CPI
The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Period
A length or portion of time.
- Evaluate the CPI and acknowledge its implications for purchasing capacity and inflation phenomena.
- Apply the concept of purchasing power to determine salary adjustments based on CPI changes.
Verified Answer
JB
james BarrionuevoMay 02, 2024
Final Answer :
B
Explanation :
The increase in CPI from 125.0 to 132.0 represents a 5.6% increase in inflation (132.0 - 125.0 = 7.0; 7.0 / 125.0 = 0.056 or 5.6%). To maintain the same purchasing power, the person's salary must also increase by 5.6%. Therefore, the new salary would be $40,000 * 1.056 = $42,240.
Learning Objectives
- Evaluate the CPI and acknowledge its implications for purchasing capacity and inflation phenomena.
- Apply the concept of purchasing power to determine salary adjustments based on CPI changes.