Compute of real and nominal salary, changes on real and nominal salary, comparison of wages at different years and decision making on employment options.
Real Changes in Wages
Pam, having recently graduated from college, is looking to work for 2 years before she enters
graduate school. She has received 2 job offers with the following salary structures:
JOB A: Pays $30,000 in 2003 and $40,000 in 2004
JOB B: Pays $30,000 in 2003 and 2004\'s salary will be equal to $30,000 plus a cost of living
adjustment equal to the inflation rate.
Suppose the increase in the price level (i.e. the inflation rate) is 35% from 2003 to 2004.
Suppose Pam has no preference for either job, other than the highest salary.
Which job should Pam take? Briefly describe