Question

Consider that you were making $40,000 last year and you are making $50,000 this year. Assume the price index of the CPI has increased from 100 to 120 or a change of 20%. How much has your total income increased (or decreased) in real terms (purchasing power)?

Answer 1

The real income will be $41,666.67.

The total income has increased by $1,666.67.

Step-by-step explanation:

The salary in the last year is $40,000.

The salary in the current year is $50,000.

The CPI in the last year was 100.

The CPI in this period is 120.

The real income will be

=
`(Current\ Income\ *\ Last\ year\ CPI)/(Current\ year\ CPI)`

=
`(50,000\ *\ 100)/(120)`

= $41,666.67

The total income has increased by

= $41,666.67 - $40,000

= $1,666.67