Assume that you expect relatively high inflation of 5% a year on average for the next 20 years and that you have a stable job that promises to give 5% raises each year. What will happen to the purchasing power of your paychecks aver time in the presence of inflation? (Hint: the "nominal dollar amount of your paycheck" would be the amount you were paid by your employer.)

Answer Pool:

The nominal dollar amount of your paychecks will increase over time but the purchasing power of those paychecks will remain more or less constant over the next 20 years.

The nominal dollar amount of your paychecks will remain more or less constant over the next 20 years.

The real dollar amount of your paychecks will increase over time but the nominal dollar amounts will remain more or less constant over the next 20 years.

The purchasing power of your paychecks will increase over the 20 years.