Question

The CPI in 1970 was 38.8. The CPI in 2007 was 207.3. The purchasing power of 50,000 in 1970 was ______ the purchasing power of200,000 in 2007.

1) less than
2) more than
3) the same as
4) not comparable to

Answer 1

The purchasing power of $50,000 in 1970 was less than the purchasing power of $200,000 in 2007.

Step-by-step explanation:

The purchasing power of $50,000 in 1970 can be compared to the purchasing power of $200,000 in 2007 by using the Consumer Price Index (CPI). The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

In 1970, the CPI was 38.8, and in 2007, it was 207.3. To calculate the purchasing power, we can divide the CPI of 1970 (38.8) by the CPI of 2007 (207.3) and multiply the result by the amount of money in 1970 ($50,000).

The formula is:

Purchasing Power in 2007 = (CPI in 1970 / CPI in 2007) * Amount in 1970

= (38.8 / 207.3) * $50,000 = $9,277.53

Therefore, the purchasing power of $50,000 in 1970 was less than the purchasing power of $200,000 in 2007.