If you are unprepared for this question, any response you give is likely to damage your ability to get a job offer. The employer wants you to name a number that can be compared to a figure the company has in mind. Suppose that the employer is looking to pay someone $36,000 a year. If you say you were hoping for $40,000, you will probably be eliminated from consideration. The employer will be afraid that, if you took the job, you may not stay. If you say you would take $29,000, you will make it nearly impossible to negotiate for a higher salary if you are offered the job. Or the employer might decide that your skills are worth less than what the job requires.
This question is designed to help the employer either eliminate you from consideration or save money at your expense. You could get lucky and name the salary the employer had in mind, but the stakes are too high for me to recommend that approach.
Employers often use discussions of pay in an initial interview to screen people out. Because you aren't likely to get a firm job offer in a first interview, your objective should be to create a positive impression and not be rejected. If the topic of pay does come up, avoid getting nailed down. Here are some things you could say:
"Are you making me a job offer?" (A bit corny, yes, but you just might be surprised at the result.)
"What salary range do you pay for positions with similar requirements?"
"I'm very interested in the position, and my salary would be negotiable."
"Tell me what you have in mind for the salary range."
"I prefer to hear more about the position before I can come up with a solid number."
Put off discussion of pay until you are sure it's the real thing and not just part of a screening process. See chapter 8 for more information on how to talk money when the time is right.