A worker currently earning $3000 per month has negotiated a 4% wage increase in anticipation of a 4% inflation rate in the next year. Under what scenario will the worker have a higher purchasing power?
A)if next year's inflation rate is 5%
B)if next year's inflation rate is 3%
C)if next year's inflation rate is 4%
D)if next year some prices increase by only 5%
E)if next year some prices increase by only 4%

Question

Quizplus · Accepted Answer

If the inflation rate turns out to be lower than the anticipated 4%, the worker will have a higher purchasing power. A 3% inflation rate means prices have increased by a smaller amount than what the worker's wage has increased by. Therefore, the worker will have a higher purchasing power.

A Worker Currently Earning $3000 Per Month Has Negotiated a 4