An engineer in 1950 was earning $5,300 a year. Today she earns $53,000 a year. However, on average, goods today cost 8.1 times what they did in 1950. What is her real income today in terms of constant 1950 dollars?
To calculate her real income today in terms of constant 1950 dollars, we need to adjust for inflation.
First, let's find the inflation rate from 1950 to today. The average increase in the cost of goods from 1950 to today is 8.1 times.
Next, we need to find the inflation-adjusted income for 1950. We divide the current income by the inflation rate:
Adjusted income in 1950 = Current income / Inflation rate
Adjusted income in 1950 = $53,000 / 8.1
Adjusted income in 1950 = $6,530.86
Therefore, her real income today in terms of constant 1950 dollars is $6,530.86.
To calculate the engineer's real income today in terms of constant 1950 dollars, we need to adjust her current income for the change in the cost of goods over time.
First, we need to determine the value of goods today relative to 1950. It is given that goods today cost 8.1 times what they did in 1950.
Next, we divide her current income by this value to find her real income in terms of constant 1950 dollars.
Real Income Today = Current Income / Value of Goods Today relative to 1950
Real Income Today = $53,000 / 8.1
Real Income Today = $6,543.21
Therefore, her real income today, in terms of constant 1950 dollars, is approximately $6,543.21.