Question

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true? Inflation has no impact on purchasing power. Jennifer is losing purchasing power by 2%. Jennifer's purchasing power will rise by 7%. Jennifer's purchasing power will rise by 2%.

Answer 1

correct answer is: Jennifer is losing purchasing power by 2%.

Step-by-step explanation:

The price index provides the price variation in a given economy. In this case, the Bureau of Labor Statistics reported that there is a variation, ie an inflation of 7%. Thus, despite Jennifer's 5% increase in income, her purchasing power will decrease by 2% as 7% inflation is higher than her 5% readjustment. That is, prices are increasing more than their income, losing purchasing power.