Tommy recently graduated from college and is now in the process of deciding where he wants to start his career. He has three job offers (!) for similar work and similar future opportunities, but each...

Tommy recently graduated from college and is now in the process of deciding where he wants to start his career. He has three job offers (!) for similar work and similar future opportunities, but each job offer is in a different city. Tommy has no strong geographic preference and his only goal is to select that job that results in his being financially best off. From his economics class Tommy knows that he needs to be thoughtful when comparing these offers. This is what he knows:

Job Offer #1: is for a job in Toledo that pays $40,000 for his first year of work (for convenience, let’s refer to this as year 2015), guarantees him a 10% increase in his nominal salary for the second year (2016), and a 10% increase in his nominal salary for the third year XXXXXXXXXXAfter that his nominal salary will be adjusted so that his real salary stays constant.

Job Offer #2: is for a job in Miami that pays $42,000 for his first year of work (for convenience, let’s refer to this as year 2015), guarantees him a 5% increase in his nominal salary for the second year (2016), and a 5% increase in his nominal salary for the third year XXXXXXXXXXAfter that his nominal salary will be adjusted so that his real salary stays constant.

Job Offer #3: is for a job in St. Paul that pays $48,000 each year for the first and second years (2015 and 2016), and a 3% increase in his nominal salary for the third year XXXXXXXXXXAfter that his nominal salary will be adjusted so that his real salary stays constant.

a. Let’s start by simply analyzing the nominal values of these three job offers. Given the above descriptions fill out the table below so that Tommy can compare the nominal values of the offers he has. Once you fill out the table rank the options in terms of their nominal values. Show in the table how you computed these answers.

b. Tommy understands from his economics class that he needs to really consider real salaries rather than nominal salaries in making his decision about which offer to accept. Luckily for him we have data about the CPI projections for the next three years for each of these cities. The table below provides our best estimates of what the CPI for 2015, 2016 and 2017 will be in each of these cities.

Use this information to complete the following table of real salary values for these three job offers. In the table, you should round your answers to the nearest whole number. Show in the table how you computed your answers. Once you fill out the table rank the options in terms of their real values. Which job offer should Tommy accept?

c. To drive home the difference between the nominal and real values a bit more. Let’s complete one more table using the data you have been given. Here is the table: make sure you show your work for how you computed your answers.