A)
Real value in year 1 = 40,000(1-5%) = $38,000
Real value in year 2 = 40,000(1-5%)2 = $36,100
Real value in year 3 = 40,000(1-5%)3 = $34,295
[Formula: Real value = Nominal value(1-inflation)]
B)
Cost of living adjustment = 5% = inflation rate
Thus, real value post inflation and COLA will remain the same each year
Thus,
Income in year 1 = Income in year 2 = Income in year 3 = $40,000
[Formula: Real value = Nominal value(1-inflation+COLA)]
hapter 9 Suppose you'll have an annual nominal income of S40,000 for inflation rate is 5...
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