Adjusting 2023 Salary for Inflation Using CPI Steps:

• Note nominal salaries from table: 2022 is $25,000; 2023 is$27,500.
• Obtain CPI values: 2022 is 100; 2023 is 121.
• Calculate real 2023 salary in 2022 dollars: ($27,500 × 100) ÷ 121 =$22,727.
• Compare to 2022 real salary of $25,000, showing a decrease due to inflation.

Why B is correct:

• B matches the formula for real income: nominal salary adjusted by CPI ratio (CPI_{2022}/CPI_{2023}), measuring purchasing power in base-year terms.

Why the others are wrong:

• A understates adjustment, ignoring precise CPI ratio.
• C is the unadjusted 2022 nominal salary.
• D is the unadjusted 2023 nominal salary.

Final answer: B