Question

The median American household earned $9,387 in 1973 and $53,657 in 2014. During that time, though, the CPI rose from 44.4 to 236.7. Instructions: Enter your answer to the nearest whole number. a. What is the value of the 1973 median household income in terms of 2014 dollars

Answer 1

$50,042.86

Explanation:

We want to calculate the real value of the 1973 household income in 2014 dollars.

To do this, we use the formula:

Real value = (Household income in 1973) * Final CPI / Initial CPI

The final CPI is the consumer price index in 2014 = 236.7

The initial CPI is the consumer price index in 1973 = 44.4

Therefore:

Real value = 9387 * (236.7 / 44.4)

Real value = $50042.86

The value of the 1973 median household income in terms of 2014 dollars is $50,042.86