At the time of Kelsey's 20 year high school reunion she was earning $50,000 and the CPI was 120.Now that it is time for her to attend her 30 year high school reunion,Kelsey's income has risen to $97,000 and the CPI is 230.At her 30 year reunion,can Kelsey rightfully brag that her real income has risen since the last time she saw her former classmates ten years ago?
A) Yes,Kelsey's real income rose during that 10 year period.
B) No,Kelsey's real income fell during that 10 year period.
C) No,Kelsey's real income remained constant during that 10 year period.
D) It is impossible to determine what happened to Kelsey's real income.

Question

Quizplus · Accepted Answer

To determine if Kelsey's real income has risen, we need to adjust her income for inflation using the CPI. To do this, we calculate the ratio of the current CPI to the CPI at the time of her 20 year reunion (230/120 = 1.92) and multiply this ratio by her income at the time of her 20 year reunion ($50,000 x 1.92 = $96,000). This gives us Kelsey's income in today's dollars if it had the same purchasing power as her income 10 years ago. Since her actual income now is $97,000, we can see that her real income has indeed risen during that 10 year period.

At the Time of Kelsey's 20 Year High School Reunion