purchasing power

Question

If only salary increases by 20%, purchasing Power will also increase by 20%. However, if inflation increases prices by 20%, Purchasing Power does not decrease by 10%, but by 16.6…% (given that 1/1.2 = 0.833… = 1 – 0.1666. ..). What happens to Purchasing Power if wages increase by 30% and prices increase by 20%?

a) Increases 6%

b) Increases 8%

c) Increases 10%

d) Increases 12%

e) Increases 15%

thank you so much

Answer 1

Use the Percent Change formula:

% Change = [ (New Salary - Old Salary) / (Old Salary) ] × 100%

Let x = your old salary. Your new salary is 30% more, so it's 1.3x:

% Change = [ (New Salary - Old Salary) / (Old Salary) ] × 100%

% Change = [ (1.3x - x) / x ] × 100%

% Change = [ 0.3x / x ] × 100%

% Change = [ 0.3 ] × 100%

Can you finish from here? If the % Change is positive, it increases; if it's negative, it decreases.