Katie Jones started her career with an annual salary of $30,000 in 2006. Five years later, in 2011, her salary had increased to $55,000 a year. If the values of the CPI (with a base of 1982−1984) for 2006 and 2011 are 201.6 and 224.9, respectively, compute the increase in Katie's real income.
A) 64.34%
B) 83.33%
C) 105.31%
D) 164.34%

Question

Quizplus · Accepted Answer

To calculate the increase in Katie's real income, we first adjust her salaries to a common dollar value using the CPI for both years. The formula for adjusting to real income is: Real Income = (Nominal Income / CPI of the year) * CPI of the base year. For 2006: Real Income = ($30,000 / 201.6) * 100 = $14,880.95 (approx.)For 2011: Real Income = ($55,000 / 224.9) * 100 = $24,455.53 (approx.)The increase in real income = $24,455.53 - $14,880.95 = $9,574.58.To find the percentage increase: ($9,574.58 / $14,880.95) * 100 = 64.34% (approx.).

Katie Jones Started Her Career with an Annual Salary of $30,000