Question

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true? Jennifer's purchasing power will rise by 2%. Inflation has no impact on purchasing power. Jennifer's purchasing power will rise by 7%. Jennifer is losing purchasing power by 2%

Answer 1

Jennifer is losing purchasing power by 2%.

Step-by-step explanation:

An increase in prices indicates a decrease in the purchasing power of the consumers. An increase in income means an increase in the purchasing power of the consumers.

A 5% raise means that Jennifer's income will increase by 5% and so will her purchasing power. But at the same time, a price rise by 7% means that her purchasing power will decrease by 7%.

This means that overall her purchasing power will decrease by 2%.