ECONOMICS (CBSE/UGC NET)

ECONOMICS

INFLATION

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

Bobby’s income increased from $50, 000 last year to $55, 000 this. During the same time the CPI went from 155 to 165. What was his real income change?

A	4.6% increase
B	5.8% increase
C	5.8% decrease
D	4.6% decrease

Explanation:

Detailed explanation-1: -The percentage change can be calculated by dividing the change in index points by the earlier time period price index multiplied by 100. Note that the Change in index points and the Percentage change are different measures of change and are usually different.

Detailed explanation-2: -First, subtract the CPI from the beginning date (A) from the later date (B), and divide it by the CPI for the beginning date (A). Then multiply the result by 100 to get the inflation rate percentage.

Detailed explanation-3: -To find the CPI in any year, divide the cost of the market basket in year t by the cost of the same market basket in the base year. The CPI in 1984 = $75/$75 x 100 = 100 The CPI is just an index value and it is indexed to 100 in the base year, in this case 1984.

Detailed explanation-4: -Real wage rate = (Nominal wage rate in current year/ CPI in current year) x 100%.

There is 1 question to complete.