Question

According to the U.S. Census Bureau (www.census.gov), the median household income in the United States was $23,618 in 1985, $34,076 in 1995, $46,326 in 2005, and $57,230 in 2015. In purchasing power terms, how did family income compare in each of those four years? You will need to know that the CPI (multiplied by 100, 1982–1984 = 100) was 107.6 in 1985, 152.4 in 1995, 195.3 in 2005, and 237.0 in 2015

Answer 1

The highest median income in purchasing power terms was in 1995, then 2005, 2015, and last 1985

Step-by-step explanation:

To solve this question we must transform the median household income into comparable units. To do so we use the CPI data given in the problem.

We can arrange everything in a spreadsheet like the attached figure. In column A we have the years, in B the nominal median household income, in the third the CPI divided by 100, this will allow us to deflate and calculate the median income in constant 1982-1984 us dollars (since 1982-1984 will be the numeraire at 1). We do that by dividing column B by C, which is shown in column D.

With these values then we have all the median incomes in comparable units. We now can order and compare them