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Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago. If the consumer price index t year Dave begins work is 180.5 while the consumer price index the year his dad started work was 110.8, Dave is:_______.
A) correct; adjusting for price changes, his salary is more than his dad's salary
B) correct; adjusting for quantity changes, his salary is more than his dad's salary.
C) incorrect; adjusting for price changes, his salary is less than his dad's salary
D) incorrect; adjusting for quantity changes, his salary is less than his dad's salary.

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Answer:

Option C Incorrect; adjusting for price changes, his salary is less than his dad's salary  

Explanation:

Adjustment to price changes = (Amount received n years ago divided by Price Index n years ago) * Price Index today

Adjustment To price changes = ($28,000 / 110.8) * 180.5 = $45613.7

The amount $28,000 is worth $45,613.7 in todays value which means that if we adjust for price changes, Dave is incorrect because his salary is worth less by an amount $613.7 from his father's salary.

Answer: C. incorrect adjusting for price changes, his salary is less than his dad's salary

Explanation:

We need to calculate the inflation rate and then adjust  Dad's salary

Inflation = (180.5 - 110.8)/110.8 = 0.629061371 = 62.91%

Dad's Salary adjusted for inflation = $ 28000 x 1.6291 =45614.80

Dad,s salary of $28000 years ago is higher than Dave's starting salary of $45000 t years ago

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