Question

You are pleased to see that you have been given a 5.95% raise this year. However, you read on the Wall Street Journal Web site that inflation over the past year has been 2.16%. How much better off are you in terms of real purchasing power? (Note: Be careful not to round any intermediate steps less than six decimal places.) Your real purchasing power is \%. (Round to two decimal places.)

Answer 1

After adjusting for an inflation rate of 2.16%, a 5.95% nominal raise results in a real increase in purchasing power of 3.79%.

Step-by-step explanation:

The question pertains to understanding the impact of inflation on your recent raise, and how much your real purchasing power has actually improved. To determine how much better off you are in terms of real purchasing power, you will need to calculate the real raise in percentage after accounting for inflation.

The formula to calculate the increase in real purchasing power is:

Real Raise (%) = Nominal Raise (%) - Inflation Rate (%)

Using the given numbers:

Real Raise (%) = 5.95% - 2.16%

This results in a:

Real Raise (%) = 3.79%

So, after adjusting for inflation, your real purchasing power has increased by 3.79%. Make sure when calculating to retain precision and not round intermediate steps less than six decimal places, and then round the final answer to two decimal places.