Question

In year 1 the cpi is 174 and in year 2 the cpi is 185.If sarah's salery was $49,600 in year 1, what is the minimum salery he must earn in year 2 to keep up with inflation? a)$54,004 b)$51,942 c)$50,508 d)52,736

Answer 1

To maintain purchasing power amidst an inflation rate of 6.32%, Sarah's year 2 salary must be at least $52,736, which is found by applying the CPI change to her year 1 salary of $49,600.

Step-by-step explanation:

To keep up with inflation from year 1 to year 2, Sarah's salary must increase by the same percentage as the CPI (Consumer Price Index). The calculation involves finding the percentage change in CPI from year 1 to year 2, and then applying this percentage increase to Sarah's year 1 salary.

Steps to Calculate the Required Salary

1. Find the percentage change in CPI: ((185 - 174) / 174) x 100 = 6.32%
2. Calculate the minimum salary needed for year 2: $49,600 x (1 + 0.0632) = $49,600 x 1.0632 = $52,736.32

The minimum salary Sarah needs to earn in year 2 to keep up with the inflation rate of 6.32% is $52,736, which matches option (d).