Question

You earn $40,000 per year at your job. Suppose the CPI is currently 213, and last year the CPI was 208. How much money could you have earned last year to have been able to purchase the same amount of goods and services?

Answer 1

To have been able to purchase the same amount of goods and services, you could have earned approximately $37,904 last year.

Step-by-step explanation:

To determine how much money you could have earned last year to purchase the same amount of goods and services, you need to adjust for the change in the cost of living. The rise in the cost of living can be calculated by finding the percentage increase in the Consumer Price Index (CPI). In this case, the CPI increased from 208 to 213, resulting in a 5.85% increase in the cost of living.

To calculate the amount you could have earned last year, you can use the equation:

Amount Earned Last Year = Amount Earned This Year / (1 + Rise in Cost of Living)

Plugging in the values, we get:

Amount Earned Last Year = $40,000 / (1 + 0.0585) = $37,903.98

So, you could have earned approximately $37,904 last year to have been able to purchase the same amount of goods and services.