Question

Assuming that you received a nominal raise of 2%, if the inflation rate was 8%, what is the real (inflation-adjusted) raise?

a) -6%
b) -4%
c) 2%
d) 10%

Answer 1

After adjusting for an inflation rate of 8%, a nominal raise of 2% translates to a real raise of -6%, meaning the purchasing power has effectively decreased.

So, the correct answer is a) -6%.

Step-by-step explanation:

To calculate the real (inflation-adjusted) raise, we subtract the inflation rate from the nominal raise. The formula to find the real raise after adjusting for inflation is:

Real Raise = Nominal Raise - Inflation Rate

Using the numbers provided:

Real Raise = 2% - 8% = -6%

The real (inflation-adjusted) raise is thus -6%, indicating that in terms of purchasing power, the salary actually decreased by 6% despite the nominal raise because the inflation rate surpassed the increase in salary.

So, the correct answer is a) -6%.