Assume your salary is $2000 per month and your employer gives you a raise of 6%.Over the next twelve months the inflation rate is 12%.Your real salary will change by

Question

Quizplus · Accepted Answer

The nominal salary after the 6% raise will be $2120 per month (2000 x 1.06). However, due to the inflation rate of 12%, the purchasing power of this salary will decrease. After the inflation, the real value of the salary will be $1869.60 (2120/1.12). Therefore, the real salary has decreased by 6% (1869.60/2000 = 0.9348 or 93.48%). The correct answer is D.

Assume Your Salary Is $2000 Per Month and Your Employer