Scenario 24-1
Grant Smith was a doctor in 1944 and earned $12,000 that year. His daughter, Lisa Smith, is a doctor today and she earned $210,000 in 2005. The price index in 1944 was 17.6 and the price index in 2005 was 184.
-Refer to Scenario 24-1.In real terms,Lisa Smith's income amounts to about what percentage of Grant Smith's income?

Question

Quizplus · Accepted Answer

To compare the two incomes in real terms, we need to adjust for inflation using the price indexes. The real value of Grant Smith's income in 2005 dollars is: 12,000 x (184/17.6) = $125,455. Lisa Smith's actual income in 2005 was $210,000, so her income in real terms is 210,000/125,455 = 1.67 or 167% of her father's income.

Scenario 24-1 Grant Smith Was a Doctor in 1944 and Earned $12,000