Frank's nominal income in 1998 is $45,000. Suppose the CPI in 1998 is 150. What is Frank's real income?
a. $51,750
b. $45,000
c. $38,250
d. $30,000
can you show me the calculations
real income in what year's dollars.
Real income in the base year of the cpi would be 45000/1.5=30000.
Real income in 1998 dollars is simply 45000.
To calculate Frank's real income, we need to adjust his nominal income for inflation using the Consumer Price Index (CPI). The CPI measures changes in the prices of a basket of goods and services over time.
First, we need to find the inflation rate for 1998. The inflation rate is calculated by subtracting the base year's CPI from the current year's CPI, and then dividing that difference by the base year's CPI. In this case, the base year is not specified, so we'll assume it is also 1998.
Inflation rate = (CPI current year - CPI base year) / CPI base year
In this case, CPI current year is 150 (given) and CPI base year is also 150 (assuming the base year is also 1998).
Inflation rate = (150 - 150) / 150 = 0
Since the inflation rate is 0, we can conclude that there was no inflation between the base year and 1998. Thus, Frank's real income in 1998 dollars is the same as his nominal income, which is $45,000.
Therefore, the correct answer is b. $45,000.