Related to the Economics in Practice on p. 133: The Consumer Price Index in the United States was 215.3 in 2008 and 214.5 in 2009. If a retiree received a monthly pension check of $3,200.00 in 2008 and his pension is tied to the CPI, how much would his monthly pension check be in 2009?
A) $3174.40
B) $3,188.11
C) $3,200.00
D) $3,214.50

Question

Quizplus · Accepted Answer

To calculate the new pension check, we need to adjust the old pension check for inflation using the Consumer Price Index.

In 2009, the CPI was 214.5, which means that the cost of living was 0.35% lower than in 2008.

To find the new pension check, we can multiply the old pension check by the ratio of the 2009 CPI to the 2008 CPI:

New pension check = (2009 CPI / 2008 CPI) x old pension check 
New pension check = (214.5 / 215.3) x $3,200.00 
New pension check = 0.996 x $3,200.00 
New pension check = $3,188.11

Therefore, the retiree's monthly pension check in 2009 would be $3,188.11, which is closest to choice B.

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