Inflation is expected to be 4% in the coming year. If Mr. Gonza earned $37,000 this year, how much must he earn the following year to keep up with inflation and maintain a balance between his income and his increasing expenditures? (Show all work.)
To keep up with an inflation of 4% in the coming year, Mr. Gonza must earn $38,480. This is calculated as $37,000 + (4% of $37,000). Alternatively, this can also be calculated as $37,000 × 1.04 = $38,480. REJ: Please see the section "Cash In and Cash Out: Preparing and Using Budgets" for more information.
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