Scenario 24-1

Sue Lewis was an accountant in 1943 and earned $12,000 that year. Her son is an accountant too and he earned $220,000 this year. Suppose the price index was 18.9 in 1943 and 20.5 in the current year.
-Refer to Scenario 24-1. In real terms, the income of Sue's son amounts to about what percentage of Sue's income?

Question

Scenario 24-1
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Sue Lewis was an accountant in 1943 and earned $12,000 that year. Her son is an accountant too and he earned $220,000 this year. Suppose the price index was 18.9 in 1943 and 20.5 in the current year.
-Refer to Scenario 24-1. In real terms, the income of Sue's son amounts to about what percentage of Sue's income?

Quizplus · Accepted Answer

To compare real incomes across different years, we adjust for inflation using the price index. Sue's real income in terms of the current year's dollars = $12,000 * (20.5 / 18.9). Her son's real income = $220,000. The percentage of Sue's real income to her son's is calculated by dividing the son's real income by Sue's adjusted real income and then multiplying by 100. The correct calculation shows that Sue's son's income is a significantly higher percentage of Sue's income, leading to the correct choice being 1690.2 percent.

Scenario 24-1 ​

Scenario 24-1