To determine the effect of the raise in relation to inflation, we need to compare the raise percentage to the inflation rate.
In this case, you are given a 2% raise. The inflation rate is 3%. Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. If your raise is less than the rate of inflation, then even though the numerical value of your paycheck increases, the actual purchasing power of that money decreases.
Here's a step-by-step explanation to understand this situation:
1. Imagine that initially, you earn $100.
2. You receive a 2% raise, which means your new salary is $102.
3. However, because of a 3% inflation rate, the prices of goods and services have increased. This means that what could be bought for $100 now costs $103.
4. Even though your paycheck increased to $102, you are not able to purchase as much with it as you used to because the cost of goods and services went up to $103.
Thus, even with the raise, you need $103 to have the same purchasing power that you had before when you only needed $100. Since you are only making $102, you effectively have less purchasing power.
The correct choice is:
O making less money in today's dollars
