In 2010 Dave received a 4% increase in his annual salary, and the overall price level fell by 1%. Knowing this we can determine that Dave’s purchasing power by in 2010. * 10 points A. increased; 3% B. decreased; 1% C. increased; 5% D. increased; 4% E. decreased; 5%

C. Increased; 5%

Explanation:

PURCHASING POWER can be seen as the way in which a sum of money can purchase a products in the market which will inturn help to determine the how the market conditions can be currently which is why in a situation where the PURCHASING POWER of a dollar REDUCED it will tend to lead to INCREASE in price level and in a situation where the PURCHASING POWER of dollar INCREASED it will tend to lead to REDUCTION in price level.

Therefore Based on this we can determine that Dave’s purchasing power INCREASED by 5% in 2010 reason been that we were told that his overall price level FELL which lead to the INCREASED in the purchasing power by 5% calculated as:

Using this formula

Purchasing power=Increase in annual salary+Decrease in price level

Let plug in the formula

Purchasing power=4%+1%

Purchasing power=5%

Therefore we can determine that Dave’s purchasing power INCREASED by 5% in 2010

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