At the time of Carol's 10 year high school reunion she was earning $30,000 and the CPI was 90.Now that it is time for her to attend her 20 year high school reunion,Carol's income has risen to $65,000 and the CPI is 200.At her 20 year reunion,can Carol rightfully brag that her real income has risen since the last time she saw her former classmates ten years ago?
A) Yes,Carol's real income rose during that 10 year period.
B) No,Carol's real income fell during that 10 year period.
C) No,Carol's real income remained constant during that 10 year period.
D) It is impossible to determine what happened to Carol's real income.

Question

Quizplus · Accepted Answer

Carol's real income is calculated by adjusting her nominal income for inflation using the CPI. At her 10-year reunion, her real income was $30,000 / 90 = $333.33 (in terms of the base year). At her 20-year reunion, her real income is $65,000 / 200 = $325. Since $325 is less than $333.33, her real income has actually fallen.

At the Time of Carol's 10 Year High School Reunion