Suppose that in 2008 all prices in the economy double and that all wages and salaries have also doubled. In 2008, you A. cannot determine whether you are better off or worse off than you were in 2007, because the purchasing power of your salary cannot be determined. B. are worse off than you were in 2007 as you can no longer afford to buy as many goods and services. C. are no better off or worse off than you were in 2007 as the purchasing power of your salary has remained the same. D. are better off than you were in 2007 as your salary is higher than it was in 2007 and you can now buy more goods and services.

Question

Jarrett Pierce

Business

5 November, 10:55

Suppose that in 2008 all prices in the economy double and that all wages and salaries have also doubled. In 2008, you A. cannot determine whether you are better off or worse off than you were in 2007, because the purchasing power of your salary cannot be determined. B. are worse off than you were in 2007 as you can no longer afford to buy as many goods and services. C. are no better off or worse off than you were in 2007 as the purchasing power of your salary has remained the same. D. are better off than you were in 2007 as your salary is higher than it was in 2007 and you can now buy more goods and services.

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Answers (1)

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Felipe Ward · Answer 1

The correct answer is letter "C": are no better off or worse off than you were in 2007 as the purchasing power of your salary has remained the same.

Explanation:

The Purchasing Power expresses money's value by defining the number of goods and services someone can buy. Inflation, the rate in which prices rise, diminishes purchasing power. It would gradually decrease over time in a growing economy as goods as services become more expensive.

In the case given, the rise in the prices will not affect the purchasing power since both factors doubled in the same year.