A college graduate in 1972 found a job paying $7,200,when the consumer price index (CPI)was 21.9.A college graduate in 2000 found a job paying $30,000,when the CPI was 95.4.The 1972 graduate's job paid ________ in nominal terms and ________ in real terms than the 2000 graduate's job.

Question

Quizplus · Accepted Answer

To find out the real value of the salaries adjusted for inflation we need to use the CPI. We can calculate the real value of each salary using the following formula:

Real Value (in base year dollars) = Nominal Value (in current year dollars) x (Base Year CPI / Current Year CPI)

For the 1972 graduate: 
Real Value = $7,200 x (95.4 / 21.9) = $31,331.05

For the 2000 graduate:
Real Value = $30,000 x (95.4 / 95.4) = $30,000

Therefore, the 1972 graduate's job paid less in nominal terms ($7,200) but more in real terms ($31,331.05) than the 2000 graduate's job. The correct answer is (D) less;more.

A College Graduate in 1972 Found a Job Paying $7,200,when