Question

In 1991, the Barenaked Ladies released their hit song "if I had a Million Dollars." How much money would the group need in 2017 to have the same amount of real purchasing power that they did in 1991? Note that the consumer price index in 1991 was 136.2 and in 2017 it was 244. Show your work for credit.

Answer 1

To have the same real purchasing power in 2017 as they did in 1991, the Ladies would need approximately $557,377.05.

To adjust the amount of money from 1991 to 2017 for changes in purchasing power, we can use the Consumer Price Index (CPI) as a measure of inflation. The formula for adjusting for inflation is:

`\[ \text{Adjusted Amount} = \frac{\text{Original Amount} * \text{CPI in Year 1}}{\text{CPI in Year 2}} \]`

Let's calculate the adjusted amount for the Ladies' "if I had a Million Dollars" song.

Given:

- Original Amount (1991) = $1,000,000

- CPI in 1991 = 136.2

- CPI in 2017 = 244

`\[ \text{Adjusted Amount} = (\$1,000,000 * 136.2)/(244) \]`

`\[ \text{Adjusted Amount} = (\$136,200,000)/(244) \]`

`\[ \text{Adjusted Amount} \approx \$557,377.05 \]`

So, to have the same real purchasing power in 2017 as they did in 1991, the Ladies would need approximately $557,377.05.

Answer 2

Given:

Consumer price index in 1991 = 136.2

Consumer price index in 2017 = 244

One billion dollar in numbers = 1,000,000

To find:

Money required in 2017 to have the same amount of real purchasing power that they did in 1991.

Solution:

Assuming 1991 as base year and 2017 as target year,

The purchasing power during 1991-2017 is

`\Rightarrow\text { 1,000,000 } * \frac{\text { CPI of target year }}{\text { CPI of base year }}`

`\Rightarrow (244)/(136.2)*1,000,000`

`\Rightarrow 1.791483*1,000,000`

`\Rightarrow 1,791,483.11 \approx 1,791,483`

Result:

In 2017, The Barenaked Ladies need
`\bold{\$1,791,483}` to have the same amount of real purchasing power that they did in 1991.