If the salary of a person in the base year is Rs. 2000

Solution

Base CPI = Rs. 100 Current CPI = Rs. 325 Base year salary = Rs. 2,000 Current year salary = Rs. 5,000 When base CPI is Rs. 100, then the salary is = Rs. 2,000 Current salary equivalent to base year salary = (Base year salary / 100) × CPI When CPI is 325, then the salary should be (2,000 / 100) × 325 = Rs.6,500 Thus, his salary should be Rs. 6,500 to maintain his purchasing power. Therefore, in the current year, the allowance required is Rs. 6,500 - Rs. 5,000 = Rs. 1,500 so as to maintain the same level of living in the current year as that of the base year.