Question

The average individual in a country earns an annual salary of $60,000, of which $24,000 is spent on housing, $10,800 on food, $10,800 on transportation, and $14,400 on other goods and services. Suppose the government in this country mandates that all salaries and the prices of all goods and services be reduced by 40 percent.

a. How much does the average individual now earn?



b. How much does the average individual now spend on housing, food, transportation, and other goods and services?

Housing $ Food $  Transportation $  Other goods $  

c. What happened to the average individual's real salary?

A. It has increased.

B. It has decreased.

C. It has not changed.

Answer 1

The individual is spending 40% of his salary on housing, 18% on food and transportation and 24% on other goods.

a. New earning = 60,000 - (0.4 * 60000) = $36,000

b. Spending on Housing = 0.4 * 36000 = $14,400

Spending on food = 0.18 * 36000 = $6480

Spending on transportation = 0.18 * 36000 = $6480

Spending on other goods = 0.24 * 36000 = $8640

c. Ans: It has nin changed

Explanation:

Because income is reduced by 40% and price is also reduced by 40%.