You earned $30,000 in 1995, and your salary rose to $80,000 in 2016.If the CPI rose from 82 to 202 between 1995 and 2016, which of the following is true?
A)There was deflation between 1995 and 2016.
B)The purchasing power of your salary fell between 1995 and 2016.
C)The purchasing power of your salary remained constant between 1995 and 2016.
D)The purchasing power of your salary increased between 1995 and 2016.
E)There is no way to compare the purchasing power of your salary between 1995 and 2016.

Question

Quizplus · Accepted Answer

To determine the change in purchasing power, adjust the salary figures by the CPI for each year. The real salary in 1995 is $30,000 / 82, and in 2016 it's $80,000 / 202. Comparing these adjusted figures shows an increase in purchasing power, despite the nominal salary and CPI both rising.

You Earned $30,000 in 1995, and Your Salary Rose to $80,000