Homework Help: Economics (inflation)

Posted by Lisa on Wednesday, January 4, 2012 at 5:04pm.

Hello! Could someone please check my answers for the first 2 problems and help me out with the 3rd? Thanks!

1. If the CPI in 1863 was 9 and the CPI in 2000 was 171.9, how much has inflation increased (%) since 1863?

I used the inflation rate equation and got a 1898.89% increase as my answer.

2. If a new loaded Mustang in 1964 (CPI 31.0) cost $2,800, how much should the car cost in 2010 (CPI 218.0) after adjusting for inflation?

I used the "salary in today's currency" equation and got $19,690.32.

3. A new mustang starting price is over 20,000. Has the car kept pace with inflation or exceeded it? Why?

I'm confused by this, please help.

Economics (inflation) - Henry, Thursday, January 5, 2012 at 4:56pm
1. (171.9/9) * 100% = 1910 %.
It went from 100% to 1910%.
% Increase = 1910% - 100% = 1810%.

OR:
Increase = 171.9-9 = 162.9.
%Increase = (162.9/9) * 100% = 1810%.

2. Cost = (218/31) * $2800 = $19,690.32

3. 2010-1964 = 46 years.
$19,690.32/46 yrs. = $428.05 /yr.

Cost = 19,690.32+428.05/yr * 2yrs =
$20,546.42 = Cost of new car(yr 2012).

Yes.

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