Allen received a 1 percent pay increase last year, a 10 percent pay increase this year, and no other increases in his wages. Over that time, the inflation rate averaged 3 percent per year. With inflation, is Allen financially better off, worse off, or the same?

INFLATION

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	Better off
B	Worse off
C	The same
D	None of the above

Explanation:

Detailed explanation-1: -Remember, the inflation rate is not derived by subtracting the index numbers, but rather through the percentage-change calculation. The precise inflation rate as the price index moves from 107 to 110 is calculated as (110 – 107) / 107 = 0.028 = 2.8%.

Detailed explanation-2: -Inflation is an increase in the overall price level. The official inflation rate is tracked by calculating changes in a measure called the consumer price index (CPI). The CPI tracks changes in the cost of living over time.

Detailed explanation-3: -Which of the following would likely cause the CPI to rise more than the GDP deflator? An increase in the price of Hondas produced in Japan and sold in the U.S.

Detailed explanation-4: -Which of the following is an example of inflation? The price level of many things you buy increases over time.

There is 1 question to complete.

ECONOMICS (CBSE/UGC NET)

ECONOMICS

INFLATION