A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $3,000 in 2005 when the CPI equaled 1.68. The real cost of tuition between 1972 and 2005:
A) increased.
B) decreased.
C) remained constant.
D) may have either increased or decreased.

Question

Quizplus · Accepted Answer

We need to adjust the nominal (actual) cost of tuition in 2005 to real (constant) dollars using CPI. 
Real cost of tuition in 1972 = $250/0.418 = $598.08 (in 2005 dollars) 
So, the percentage increase in real cost of tuition = [(3000-598.08)/598.08] x 100% = 401.3%
Therefore, the real cost of tuition increased significantly between 1972 and 2005.

A Year's Tuition at a State University Cost $250 in 1972