Question

You made $3000 on a part-time job last year. If you expect to make the same amount this year, and the inflation rate is three percent, what is your purchasing power?

Answer 1

New spending power is 97.087% of this year
(to 3 decimal places)

Explanation:

Assumption: The inflation rate of 3% is applied to the cost of everything (not so in real life).

So the change is:

`$x larr" Last year's cost"`

This years cost:

`$x+$(3/100xx x) = $x(1+3/100)=$x(103/100)`

`$3000(103/100) = $3090`

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Thus the new `ul("'spending power'")` is `($3000)/($3090)` of this year

Expressing this as a percentage of last years 'spending power' we have:

`(cancel($)3000)/(cancel($)3090)xx100% = 97.087378...%`

New spending power is: 97.087% to 3 decimal places