2. gerald just received a 2% raise from his employer. however, the rate of inflation last year was 3%…

2. gerald just received a 2% raise from his employer. however, the rate of inflation last year was 3%. explain why this is a problem for gerald.

2. gerald just received a 2% raise from his employer. however, the rate of inflation last year was 3%. explain why this is a problem for gerald.

Answer

Brief Explanations:

Inflation is the general increase in prices. Gerald's 2% raise is less than the 3% inflation rate. So, in real - terms, his purchasing power has decreased as the cost of goods and services has increased at a faster rate than his income.

Answer:

Gerald's real income has decreased because the inflation rate (3%) is higher than his raise percentage (2%), reducing his purchasing power.