You graduate from IU and get a job with an annual salary of $50,000. a. (1...
You graduate from IU and get a job with an annual salary of
$50,000.
a. (1 point) Your boss calls you into the office and
says she is happy with your performance and is going to give you a
$1,000 raise. What percentage raise is this for you?
b. (1 points) If the Inflation
Rate is 2.0%, what is the actual amount of your raise?
Homework Answers
(a) Annual Salary = $50000
Raise = $1000
Percentage Raise = i = Raise / Salary * 100% = 1000/50000 * 100% = 2%
(b) According to the Fisher Equation,
(1 + i) = (1 + r) × (1 + π)
where, i = nominal interest rate (rate before inflation) = 2%
r = real interest rate
π = inflation rate = 2%
=> (1+0.02) = (1+r)(1+0.02)
=> r = 0%
Hence, actual amount of raise = 0%
Hence, nominal interest rate = 9.2%
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