An engineer in 1050 was earning $6,600 a year. In 2017 she earned $86,000 a year. However, on average, prices were higher than in 1950. What was her real income in 2017 in terms of constant 1950 dollars?
An engineer in 1050 was earning $6,600 a year. In 2017 she earned $86,000 a year. However, on average, prices were higher than in 1950. What was her real income in 2017 in terms of constant 1950 dollars?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
An engineer in 1050 was earning $6,600 a year. In 2017 she earned $86,000 a year. However, on average, prices were higher than in 1950. What was her real income in 2017 in terms of constant 1950 dollars?
Transcribed Image Text:CPI
Percent Change since 1950
1950
25.0
1960
29.8
+ 19.2%
1970
39.8
+59.2
1980
86.3
+245.2
1990
133.8
+435.2
2000
174.0
+596.0
2010
219.2
+776.8
2017
248.0
+892.0
Expert Solution
Step 1 given data
she earned $86000 in 2017
cpi in the given table for 2017 is 248.0
cpi for 1950 = 25
formual for real income = income in year 2017 * cpi for 1950/cpi for 2017
now substitiute the values in given formula
real income in 2017 = 86000 * 25/248.0
= 2150000/248.0
= $8669.35
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