Suppose a recent college graduate has an annual nominal income of $42,000 for the first year she works.If the annual inflation rate is 5 percent,what salary would she need in the second year to maintain the same real income?
A) $39,900
B) $42,000
C) $42,500
D) $44,100

Question

Quizplus · Accepted Answer

To maintain the same real income with a 5% inflation rate, the salary needs to increase by 5% from $42,000. Calculating 5% of $42,000 gives $2,100. Adding this to the original salary gives $44,100 ($42,000 + $2,100).

Suppose a Recent College Graduate Has an Annual Nominal Income