Question

Mia Denton was an accountant in 1943 and earned $21,000 that year. her son is an accountant too and he earned $270,000 this year. suppose the price index was 18.3 in 1943 and 20.2 in the current year. In real terms, the income of mia's son amounts to about what percentage of mia's income?

A. 12.9 percent
B. 1164.8 percent
D. 8.6 percent
D. 1.1 percent

Answer 1

To calculate the percentage of the son's income compared to Mia's income in real terms, we need to adjust for inflation. The son's income amounts to about 1164.8% of Mia's income in real terms. B. 1164.8 percent

Step-by-step explanation:

To calculate the income in real terms, we need to adjust for inflation. In this case, we'll use the price index to compare the purchasing power of the incomes in 1943 and the current year.

First, we calculate the inflation rate:

• Inflation rate = (Price index in the current year - Price index in 1943) / Price index in 1943 = (20.2 - 18.3) / 18.3 = 0.1038

Next, we calculate the son's income in 1943 dollars:

• Son's income in 1943 dollars = (Son's income in the current year) / (1 + inflation rate) = $270,000 / (1 + 0.1038) = $244,958.17

Finally, we calculate the percentage of the son's income compared to Mia's income:

• Percentage = (Son's income in 1943 dollars) / (Mia's income in 1943) * 100 = ($244,958.17 / $21,000) * 100 = 1164.8%

Therefore, the son's income amounts to about 1164.8% of Mia's income in real terms.