Question

In: Economics

The rate of inflation over the last two years has averaged 2% per year. At the...

The rate of inflation over the last two years has averaged 2% per year. At the same time, John feels like he is able to purchase fewer goods and services with his annual salary. Therefore:\

Both John’s nominal and real salaries must have declined

John must not have received any pay raise

John’s nominal salary must have declined

John’s real salary must have declined

29.

Under which of the following circumstances is inflation most costly to an individual?

Group of answer choices

The inflation rate has averaged 5% for each of the last five years and an individual has received a 6% pay raise for each of the last five years.

An individual's wage is indexed to the rate of inflation.

Joe is a minimum wage earner and the minimum wage has not changed for the last five years.

Joe has a contract at work that guarantees him a cost of living adjustment equal to the going rate of inflation. Last year inflation was 10%.

Solutions

Expert Solution

1. Ans - John’s real salary must have declined

Explanation:

Real GDP is use to measure the purchasing power so if John feels like he is able to purchase fewer goods and services with his annual salary, it means his real GDP has declined.

2. Ans - Joe is a minimum wage earner and the minimum wage has not changed for the last five years

Explanation:

All the other individual are either get the pay raise or their wages are indexed to the rate of inflation but Joe who is a minimum wage earner has not get anything to adjust the inflation so among all the circumstances  inflation is most costly to him.

Rahul Sunny answered 2 years ago
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