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12 April, 04:32

If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011

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  1. 12 April, 04:37
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    =$4,348

    Explanation:

    To calculate expected increase in income between 2007 and 2011, the following steps will be undertaken

    Step 1: Calculate the inflation difference between the 2007 and 2011 Consumer Price Index (CPI)

    The formula for inflation rate = (CPI 2011 - CPI 2007) / CPI 2007 x 100

    CPI for 2011 = 225

    CPI for 2007 = 207

    Inflation rate = (225-207) / 207 x 100

    = 18/207 x 100 = 8.696%

    Step 2: Multiply the inflation rate and the earnings in 2007 to get the raise required to keep her purchasing power constant

    = 0.8696 x $50,000

    =$4,348.
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