Question

Nate collected social security payments of $220 a month in year 1. If the price index rose from 90 to 108 between year 1 and year 2, then his social security payments for year 2 should have been:

a) $228
b) $238
c) $257
d) $264

Answer 1

Nate's Social Security payments should be adjusted for inflation by 20%, resulting in a new payment of $264 for year 2.

Step-by-step explanation:

Nate's Social Security payments in year 2 should be adjusted according to the rise in the Consumer Price Index (CPI) from year 1 to year 2 to account for inflation. The calculation of the payment adjustment is based on the percentage change in the CPI. Initially, we need to determine the percentage increase in the CPI.

The rise in the cost of living (inflation rate) is calculated using the formula:

Percentage Increase = (New CPI - Old CPI) / Old CPI × 100%

In this case:

Percentage Increase = (108 - 90) / 90 × 100% = 20%

Once we have the percentage increase, we can calculate the new Social Security payment:

New Payment = Old Payment × (1 + Percentage Increase)

For Nate's case:

New Payment = $220 × (1 + 0.20) = $220 × 1.20 = $264

Therefore, Nate's Social Security payments for year 2 should have been $264.