If your annual income from a part-time job is $2,698, and the inflation rate is 4 percent, what is the purchasing power of your income?
Instead of laying off workers, a company cut all employees hours from 40 hours to 3 hours a week. By what percent were employee hours cut?
To calculate the purchasing power of your income, we need to account for the effect of inflation. Here's how you can calculate it:
Step 1: Calculate the inflation-adjusted income:
Inflation-adjusted income = Annual income / (1 + inflation rate)
= $2,698 / (1 + 0.04)
= $2,698 / 1.04
≈ $2,598.08
Step 2: Calculate the purchasing power:
Purchasing power = Inflation-adjusted income / Current income
= $2,598.08 / $2,698
≈ 0.9627
Therefore, the purchasing power of your income is approximately 0.9627 or 96.27%.
Explanation:
Purchasing power is a measure that reflects how much you can buy with your income after accounting for the impact of inflation. Inflation reduces the value of money over time, making goods and services more expensive. To account for this, we adjust the income for inflation by dividing it by 1 plus the inflation rate. Then, we divide the inflation-adjusted income by the current income to find the purchasing power. In this case, with an annual income of $2,698 and an inflation rate of 4%, the purchasing power is approximately 96.27%, meaning the income can buy about 96.27% of what it could have bought without inflation.