Janet is receiving a 5% pay raise. If the rate of inflation is 2%, then Janet's purchasing power is
A) falling.
B) rising.
C) unaffected by either inflation or the pay raise because they are expressed in nominal and not in real terms.
D) impossible to determine without further information.

Question

Quizplus · Accepted Answer

Janet's purchasing power is rising because her pay raise is greater than the rate of inflation. This means she will be able to purchase more with her increased income, despite the increase in prices due to inflation.

Janet Is Receiving a 5% Pay Raise