Scenario 11-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008.
-Refer to Scenario 11-3. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income?

Question

Quizplus · Accepted Answer

To calculate the real income of Sue and Josh in the same year, we need to adjust Sue's income for inflation using the price index. Real income of Sue in 2008 = (1944 price index/2008 price index) x Sue's income in 1944 = (17.6/184) x $12,000 = $1,131.30. 
Therefore, Josh's income in real terms is $210,000/$1,131.30 = 186 times higher than Sue's real income. That is 167% of Sue's real income (186 - 100 = 86% more than Sue's real income). Therefore, the correct answer is B.

Scenario 11-3 Sue Holloway Was an Accountant in 1944 and Earned $12,000