Question

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $60,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid ______ in nominal terms and ______ in real terms than the 2016 graduate's job.

Answer 1

1 is the base index of CPI, so a value of 0.418 means that the prices were 0.418 times the base index and 2.4 means that prices were 2.4 times the index

The 1972 graduate's job paid $7200 in nominal terms and (7200/0.418) in real terms

Real terms 1972= 17224

Real terms 2016= 25000

17224/25000= 68%

The 1972 graduate's job paid 68 percent of the 2016 graduates job in real terms.

Explanation: