Question

3. The CPI in 1999 is 120, while in 2001 it stands at 148. You earned $8,500 in 1999, and $12,300 in 2001. Calculate:

i. Your real income in each year. Are you better off in 2001?

ii. The percentage change in your real income between the two years.

Answer 1

i. Your real income in each year. Are you better off in 2001?

real income =( nominal income /CPI)*100

real income in 1999=(8500/120)*100

=7083.33333

=7083.33

real income in 2001=(12300/148)*100

=8310.81081

=8310.81

Yes you are better of in 2001 as the real income increased

ii. The percentage change in your real income between the two years.

% change =((current amount -last amount)/last amount)*100

% change in real income =(( income in 2001-income in 1999)/income in 1999)*100

=((8310.81081-7083.33333)/7083.33333)*100

=17.3290938

=17.33%