The Consumer Price Index (1982-1984 = 100) in 2016 was about 237.1. The CPI in 1930 (same base) was 16.7. The New York Yankees paid Babe Ruth $80,000 in 1930, an enormous salary for an athlete in those days. The buying power of the Babe's salary in 2016 dollars is about:
A) $594,042.
B) $1,077,365.
C) $1,135,808.
D) $16,656,000.
E) $17,992,000.

Question

Quizplus · Accepted Answer

To calculate the buying power of Babe Ruth's salary in 2016 dollars, we need to adjust for inflation using the CPI.

First, we need to find the inflation rate between 1930 and 2016:

Inflation rate = (CPI in 2016 / CPI in 1930) x 100
Inflation rate = (237.1 / 16.7) x 100
Inflation rate = 1,419.16%

This means that prices, on average, have increased by 1,419.16% between 1930 and 2016.

Next, we need to adjust Babe Ruth's salary for inflation:

Adjusted salary = (salary in 1930) x (CPI in 2016 / CPI in 1930)
Adjusted salary = $80,000 x (237.1 / 16.7)
Adjusted salary = $1,135,808.38

Therefore, Babe Ruth's salary in 1930 of $80,000 would have the same buying power as $1,135,808.38 in 2016 dollars.

The best choice is C, $1,135,808.

The Consumer Price Index (1982-1984 = 100) in 2016 Was