Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012.If the price index was 184 in 2004 and 226 in 2012,then we could say
A) tuition has increased more slowly than inflation.
B) tuition has increased more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) nominal tuition has decreased.
E) tuition suffers from money illusion due to inflation.

Question

Quizplus · Accepted Answer

To determine the real change in tuition over time, we need to adjust for inflation using the price index. We can do this using the following formula:

Real tuition = Nominal tuition / Price index * 100

For 2004: 
Real tuition = $4,259 / 184 * 100 = $2,314.30

For 2012: 
Real tuition = $7,787 / 226 * 100 = $3,445.58

This means that in real terms, tuition at North Carolina State University increased from $2,314.30 to $3,445.58 between 2004 and 2012. Thus, the real increase in tuition is about 49% (rounded to two decimal places).

Since the price index increased by about 22% over this time period (226/184 * 100 = 122.83), we can see that tuition has increased more rapidly than inflation. Therefore, the correct answer is B.

Assume Tuition and Fees at North Carolina State University Cost