Assume your uncle recorded his salary history during a 40-year career and found that it had increased ten-fold.If inflation averaged 5 percent annually during the period, how would you describe his purchasing power, on average?

Question

Quizplus · Accepted Answer

Since the salary increased ten-fold, it means that it increased by a factor of 10. To find the average annual increase, we can take the 10th root of this factor, which is approximately 1.16. This means that, on average, the salary increased by 16% per year.

If inflation averaged 5% annually during the period, it means that prices increased by an average of 5% per year. Therefore, the uncle's purchasing power would have decreased by 5% each year due to inflation.

To determine how much he "beat" inflation, we can subtract the inflation rate from the average annual increase in the salary:

16% - 5% = 11%

Therefore, the uncle's purchasing power increased by an average of 11% per year, which is almost 1% above the inflation rate. So the correct answer is B.

Assume Your Uncle Recorded His Salary History During a 40-Year