Question

In 2018 President Trump will earn $400,000; in 1999 President Clinton earned $200,000. What is the change in the purchasing power of the president's salary between 1999 and 2018? The CPI in 2018 is 250 and in 1999 was 150. What is meant by purchasing power? Which president has the higher nominal income? Is this Income Too High Or Too Low for a President and how would you tell?

Answer 1

Purchasing power is the value of a currency expressed in terms of the amount of goods and serives that one unit of money can buy.Inflation decreases the amount of goods and services,one would be able to purchase over time.

So, the real wage has increased by 20%, In 2018 President Trump is earning 120% of what President Clinton was earning in 1999 in terms of purchasing power.

President Trump has higher nominal income as nominal income is not adjusted for changes in purchasing power,owing to inflation.