Question 1

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

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Question 2

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2001 salary in 2006 dollars is

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Question 3

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 180 in 2009, then what is the price of the Firebird in 2009 dollars?

Accepted Answer

To calculate the price of the Firebird in 2009 dollars, we need to adjust for inflation using the ratio of the price index values:

Price in 2009 dollars = Price in 1969 dollars x (Price index in 2009 / Price index in 1969)

Price in 2009 dollars = $2,500 x (180 / 36.7)

Price in 2009 dollars = $2,500 x 4.9

Price in 2009 dollars = $12,250

Therefore, the price of the Firebird in 2009 dollars is $12,250, which is closest to option D, $12,261.58.

Question 4

Scenario 6-1
The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 6-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

Accepted Answer

To compare the prices of the tennis balls, we need to adjust for inflation. We can do this by using the CPI values for the two years. We can calculate the price of a 1975 tennis ball in 2005 dollars using the formula: 
Price in 2005 dollars = Price in 1975 dollars x (CPI in 2005 / CPI in 1975)

So, the price of a 1975 tennis ball in 2005 dollars = $0.10 x (191.3 / 52.3) = $0.3658, which is approximately $0.27 when rounded to two decimal places. Therefore, a 1975 tennis ball cost $0.27 in 2005 dollars, which is less than the $1.00 price of a tennis ball in 2005. Hence, tennis balls were cheaper in 1975.

Question 5

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2001 salary in 2006 dollars is

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Question 6

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 1996 salary in 2006 dollars is

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Question 7

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 14 in 1949, 92 in 1987, and 114.5 in 2000. According to these numbers, the hospital cost about

Accepted Answer

To calculate the inflation-adjusted cost of the hospital in 2000 dollars, we need to use the price index for each year to convert the original cost to its equivalent value in 2000.

The hospital was built in 1949, so we need to adjust for inflation from 1949 to 2000 using the price index for those years:

(114.5/14) * $500,000 = $4,104,286

So the hospital cost about $4.1 million in 2000 dollars.

This is more than the cost of the courthouse restoration in 2000 dollars, which was $2.4 million. Therefore, the answer is D.

Question 8

Scenario 6-1
The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 6-1. The price of a 1975 tennis ball in 2005 dollars is

Accepted Answer

To calculate the price of a 1975 tennis ball in 2005 dollars, we need to adjust the 1975 price using the CPI ratio of 2005 to 1975 (191.3/52.3).

Adjusted price of 1975 tennis ball = 0.10 x (191.3/52.3) = 0.366

Rounding to two decimal places, the price of a 1975 tennis ball in 2005 dollars is $0.37. Therefore, the correct answer is C.

Question 9

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

Accepted Answer

To find out the purchasing power of $10 in 1967, we need to adjust it for inflation. Using the CPI, we can calculate the inflation rate as (390-104)/104 = 2.75. This means that prices have increased by a factor of 2.75 since 1967. To find out what $10 in 1967 would be worth today, we need to multiply it by 2.75, which gives us $27.50. However, we need to round this to the nearest 50 cents, which gives us $27.00. Therefore, $10 in 1967 is equivalent to $27.00 today. To find out what $10 in 1967 would be worth in terms of purchasing power today, we need to divide $27.00 by the CPI today (390). This gives us $27.00/390 = $0.0692 (rounded to four decimal places). Finally, to find out how much $10 in 1967 would buy today, we need to divide $10 by $0.0692, which gives us $144.67. However, we need to round this to the nearest dollar, which gives us $145. Therefore, $10 in 1967 has the same purchasing power as $145 today. The closest choice is B, which states that $37.50 purchases today.

Question 10

the CPI was 96 in 1982, and the CPI was 208 in 2010. How much money would you have needed in 2010 in order to buy what you could have bought with $500 in 1982?

Accepted Answer

We need to adjust $500 in 1982 to its equivalent value in 2010. 
Using the CPI values for both years, we can set up the following proportion:

1982 CPI / 2010 CPI = 1982 dollars / 2010 dollars

Solving for 2010 dollars:

2010 dollars = 1982 dollars x (2010 CPI / 1982 CPI)

2010 dollars = $500 x (208/96)

2010 dollars = $1,083.33

Therefore, you would have needed $1,083.33 in 2010 to buy what $500 could buy in 1982. 
The correct answer is B.

Question 11

Scenario 6-2
The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 6-2. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

Accepted Answer

To find out the cost of the golf balls in 1975 dollars, we need to adjust the price of the golf balls in 2005 using the CPI. The formula is (Price in year B/ CPI in year B) x CPI in year A.

Using the formula:
($2.00/191.3) x 52.3 = $0.55

Therefore, in 1975 dollars, a golf ball in 1975 cost $0.20, and a golf ball in 2005 cost $0.55. Golf balls were cheaper in 1975.

Question 12

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is

Accepted Answer

We need to adjust Janelle's 2006 salary to 1996 dollars. To do this, we use the formula:

Adjusted Salary = (Original Salary) x (New CPI / Old CPI)

Plugging in the given values, we get:

Adjusted Salary = $65,000 x (160 / 266) = $39,097.74

Therefore, the answer is A) $39,097.74.

Question 13

Scenario 6-2
The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.
-Refer to Scenario 6-2. The price of a 1975 golf ball in 2005 dollars is

Accepted Answer

To convert the 1975 price of $0.20 into 2005 dollars, we need to adjust for inflation using the CPI. The formula for adjusting for inflation is: (new CPI/old CPI) x old price. So, we have: (191.3/52.3) x $0.20 = $0.73. Therefore, the 1975 golf ball would cost $0.73 in 2005 dollars.

Question 14

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as

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Question 15

If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as

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Question 16

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

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Question 17

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is

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Question 18

You know that a candy bar costs sixty cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

Accepted Answer

To compute the price of the candy bar in 1962 prices, we need to adjust the current price for inflation using the ratio of today's CPI to the 1962 CPI. This is done by dividing the 1962 CPI by today's CPI and then multiplying the result by the current price. Therefore, the correct equation is sixty cents (1962 CPI / today's CPI).

Question 19

The CPI was 172 in 2007, and the CPI was 46.5 in 1982. If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?

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Question 20

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about

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Quiz 6: Measuring the Cost of Living