Ben's nominal annual income in 2009 was $40,000.If the rate of inflation is constant at 10 percent,in order to keep Ben's real income constant,his nominal income in the year 2010 should be:

Question

Quizplus · Accepted Answer

Inflation rate = (New price index - Old price index) / Old price index * 100%
Let x be the nominal income in 2010.
Inflation rate = [(x - 40,000) / 40,000] * 100% = 10%
Simplifying the above equation, we get x = $44,000. 
So, to maintain the same purchasing power, Ben's nominal income in 2010 should be $44,000.

Ben's Nominal Annual Income in 2009 Was $40,000