Question 5: The following table aves information on tho Consumer Price Index and

Question

Question 5: The following table aves information on tho Consumer Price Index and the monthly toko-home pay of Bl Martin, an employee at the Joop Corporation Year 2002 2007 2010 Consumer Price Index 2002-100) 100.0 Mr.Martin's Moethly Take-Home Pay $2400 2800 2900 116.5 1. What is the purchasing power of the dolar for 2007 based on the period 20023 2. Determine Mr. Martin's "real" monthly income for 2007 3. What is the purchasing power of the dolar for 2010 based on the period 2002 4. Determine Mr. Martin's "real monthly income for 2010

Explanation / Answer

1) Purchasing power in 2007 based on 2002 = 100 / 111.5 = 0.897

2) Real income 2007 = (salary / index) * 100 = 2800/111.5) * 100 = 2511.21

3) Purchasing power in 2010 based on 2002 = 100 / 116.5 = 0.858

4) Real income 2010 = (salary / index) * 100 = 2900/116.5) * 100 = 2489.27

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