Question

7. Suppose your employer offers you a 2% raise. What would be the consequences if inflation were less than 2%, exactly 2%, or greater than 2%?

Answer 1

Increase in salary = 2%

When inflation is less than 2% then I will be better off. For example rate if inflation = 1%

Actual increase in salary = 2% - 1% = 1%

If inflation is exactly 2%

Then resultant increase in salary = 2 % - 2% = 0 % No change

When inflation is greater than 2%. Assume inflation to be 3%

Impact on buying power = 2% - 3% = -1%

Thus, when inflation is less than 2%, I will be better off

When inflation is equal to rise , no change

When inflation greater than rise, buying power will decline.

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