Calculation of Real Salary Increase

To calculate the real salary increase, we need to first understand the percentage increase in both prices and salaries.

Percentage Increase in Prices and Salaries

- Prices increase by 10%
- Salaries increase by 20%

Calculation of Real Salary Increase

The real salary increase is the percentage increase in purchasing power due to the salary increase. To calculate the real salary increase, we need to adjust the salary increase for the increase in prices.

Formula:

Real salary increase = (1 + percentage increase in salaries) / (1 + percentage increase in prices) - 1

Calculation:

Real salary increase = (1 + 20%) / (1 + 10%) - 1
Real salary increase = 9.09%

Therefore, the real salary increase is 9.09%.

Explanation:

A 20% increase in salaries means that an employee's salary has increased by 20%. However, due to a 10% increase in prices, the purchasing power of the salary has decreased. The real salary increase takes into account the increase in prices and calculates the percentage increase in purchasing power. In this case, the real salary increase is 9.09%.

For example, if an employee's salary was $50,000 before the increase, their new salary would be $60,000 after the 20% increase. However, due to the 10% increase in prices, the cost of goods and services has also increased. This means that the employee's purchasing power has decreased. The real salary increase of 9.09% takes into account the increase in prices and calculates the percentage increase in purchasing power.

10%