Question

Chidi, a moral philosophy professor, earned $64 700 per annum in 2012. Since the CPI in 2012 was 121.7, and in 2018 was 133.4, what did Chidi have to earn in 2018 to keep up with inflation, assuming his real income did not increase?

Answer 1

Chidi needs to earn approximately $70,952 in 2018 to maintain the same standard of living he had in 2012, accounting for inflation measured by the Consumer Price Index.

Step-by-step explanation:

To keep up with inflation from 2012 to 2018, we need to calculate the wage Chidi must earn in 2018 equivalent to the purchasing power of $64,700 in 2012 using the Consumer Price Index (CPI). We first determine the inflation rate using the CPI values of 121.7 in 2012 and 133.4 in 2018:

• Inflation rate = (CPI in 2018 - CPI in 2012) / CPI in 2012
• Inflation rate = (133.4 - 121.7) / 121.7
• Inflation rate = 11.7 / 121.7
• Inflation rate ≈ 0.096159
• Inflation rate ≈ 9.6159%

Next, calculate what Chidi needs to earn in 2018 to have the same purchasing power:

• Chidi's 2018 salary = Chidi's 2012 salary * (1 + inflation rate)
• Chidi's 2018 salary = $64,700 * (1 + 0.096159)
• Chidi's 2018 salary = $64,700 * 1.096159
• Chidi's 2018 salary ≈ $70,952

To maintain the same standard of living, Chidi would need to earn approximately $70,952 in 2018.