Suppose, hypothetically, that inflation is 3% per
year and suppose that the graph of your salary
in constant dollars looks like the graph below:
Is your salary in actual, non-constant dollars
A. increasing
B. constant
C. decreasing
D. cannot be determined
from information given.
Suppose, hypothetically, that inflation is 3% per
year and suppose that the graph of your salary
in constant dollars looks like the graph below:
Is your salary in actual, non-constant dollars
A. increasing
It has to increase at a rate of 3% to
keep up with inflation. The constant
dollar graph says that you “feel the
same” each year. In order for that to
be the case your percentage raise
has to match the percentage
increase of rent, transportation,
food, etc.
Suppose, hypothetically, that inflation is 3% per
year and suppose that the graph of your salary
in constant dollars looks like the graph below:
Is your salary in actual, non-constant dollars
A. increasing
B. constant
C. decreasing
D. cannot be determined
from information given.
Suppose, hypothetically, that inflation is 3% per
year and suppose that the graph of your salary
in constant dollars looks like the graph below:
Is your salary in actual, non-constant dollars
The correct answer is D: cannot be
determined from the information
given. We can imagine a situation for
each scenario where the constant
dollar graph looks like it does in the
picture. The trickiest situation is one
in which your actual dollars are
increasing at a percentage that is
below 3%. This would still result in
your constant dollar graph looking as
it does to the right; decreasing value
of your salary.