Casey received a 1% raise this year. Inflation rose by 3%. How will this affect Casey's budget?
A. He can spend more on impulse purchases.
B. He will have more money to save for long-term financial goals.
C. He will have to pay on credit.
D. None of the above.

Question

Casey received a 1% raise this year. Inflation rose by 3%. How will this affect Casey's budget?
	A.	He can spend more on impulse purchases.
	B.	He will have more money to save for long-term financial goals.
	C.	He will have to pay on credit.
	D.	None of the above.

anonymous · Answer

D. None of the above. 

The net result is that, despite his raise, his real income has declined. Therefore, it can't be A or B. And "C" is not necessarily true--though it COULD turn out that he ends up paying on credit, that is not a necessary result of the decline in real wages.