The take-home pay of an employee working in an urban area for 1993 and 2007 are as follows. If the CPI rose from 159 in 1993 to 210 in 2007 (1982-84 = 100),what was the "real" take-home pay of the employee in 2007?
A)$5,000
B)$15,000
C)$113,200
D)$53,904

Question

The take-home pay of an employee working in an urban area for 1993 and 2007 are as follows.  If the CPI rose from 159 in 1993 to 210 in 2007 (1982-84 = 100),what was the "real" take-home pay of the employee in 2007?
A)$5,000 
B)$15,000 
C)$113,200 
D)$53,904

Quizplus · Accepted Answer

To find the real take-home pay in 2007, we need to adjust for inflation using the CPI ratio. The CPI ratio is calculated by dividing the CPI in the later year (2007) by the CPI in the earlier year (1993):

CPI ratio = 210/159 = 1.321

To find the real take-home pay, we need to divide the nominal take-home pay in 2007 by the CPI ratio:

Real take-home pay = Nominal take-home pay in 2007 / CPI ratio
Real take-home pay = $71,200 / 1.321
Real take-home pay = $53,904

Therefore, the correct answer is D) $53,904.

The Take-Home Pay of an Employee Working in an Urban