Mr Lucas earned an annual salary of $100,000 in year 1990. His salary last year was...
Mr Lucas earned an annual salary of $100,000 in year 1990. His salary last year was $160,000. According to the Bureau of Statistics, the CPI for 1990 was 100 and CPI for last year was 200. Which of the following statements is true?
Select one:
a. Mr Lucas is better off now because he earned $60,000 more last year than in 1990.
b. Mr Lucas is worse off now because he earned $60,000 less last year than in 1990.
c. Mr Lucas is worse off now because his 1990 salary, adjusted by the CPI, was higher than his salary last year.
d. Mr Lucas is better off now because his 1990 salary, adjusted by the CPI, was lower than his salary last year.
Homework Answers
Answer: 3rd option
Real salary of the last year should be calculated first.
Real salary of the last year = (Salary of 1990 × CPI of the last year) / CPI of 1990
= ($100,000 × 200) / 100
= $200,000
This is lower than the last year’s actual salary, which is $160,000. It means his salary of 1990 was higher.
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