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

Question

Quizplus · Accepted Answer

Initially, the salary is $2000 per month.

After a 6% raise, the new salary becomes:

$2000 + (6/100)*$2000 = $2120 per month

However, due to inflation of 12%, the value of money decreases. So, the new salary in terms of its real value becomes:

$2120 / (1 + 12/100) = $1889.29 per month

Therefore, the real change in salary is:

($1889.29 - $2000) / $2000 * 100% = -5.56%, which can be rounded off to -6%.

Hence, the best choice is option B, which indicates a decrease of 6% in the real salary.

Assume Your Salary Is $2000 Per Month and Your Employer