In year 1 the CPI is 140, and in year 2 the CPI is 154. From year 1 to year 2, Maria's salary rises from $43,000 to $48,000, and Daisy's salary rises from $65,000 to $70,000. Who is "more than keeping up with inflation"?

Who is "more than keeping up with inflation"?

Maria

Explanation:

the person who is more than keeping up with inflation is the one that has the highest salary raise between years 1 and 2. We must first determine the real salaries of year 1 and 2, and then determine how much they increased:

Maria's nominal salary Maria's real salary % change

Year 1 $43,000 = $43,000/1.4 = $30,714.29

Year 2 $48,000 = $48,000/1.54 = $31,168.83 1.45%

Daisy's nominal salary Maria's real salary % change

Year 1 $65,000 = $65,000/1.4 = $46,428.57

Year 2 $70,000 = $70,000/1.54 = $45,454.55 - 2.1%

Maria actually got a 1.45% increase in her real wage, while Daisy lost money, since her real wage decreased by 2.1%.

Maria is more keeping up with inflation because her salary has increased by a percentage rate (12%) that is higher that the inflation rate (10%)

Explanation:

To determine who is keeping up with inflation more, we would compare the percentage in the salaries to the inflation rate

Inflation rate = (CP1 in year 2/CPI in year 1) * 100

= (154/140) * 100

= 10%

Change in salary =

(Current salary - previous salary) / previous salary * 100

Maria

= (48,000 - 43,000) / 43,000 * 100

= 12%

Daisy's

= (70,000 - 65,000) / 65,000 * 100

= 8%

Maria is more keeping up with inflation because her salary has increased by a percentage rate (12%) that is higher that the inflation rate (10%)