Question

Perry made $34,885 this year. If the inflation rate was 6.5 percent, how much was his salary actually worth? (purchasing power) (Points : 1)
$34,885
$37,120.58
$32,617.48
$33,449.23

Answer 1

Purchasing power = (1 - 0.065) (income)

Answer 2

i don't get it? @douglaswinslowcooper

Answer 3

Inflation reduces the value of your money.

If I offer you $100 to work for me, but I delay and pay you at the end of the year, when prices have gone up by about 6.5% (inflation rate), then that $100 will only purchase as much as (1-0.065)(100) = $93.50 would at the beginning of the year.

Here they want you to decrease his pay by 6.5% to get your answer.

In fact, as he is paid all during the year, the true answer is more complicated, but my approach will give you one of the answers there.