Question

Imagine that after completing your economics course (you get an A, of course) you are at a family gathering. Your grandmother asks you about a news story she read this morning. The story explained that when the government adjusts Social Security payments for inflation, it generally uses the CPI-W, which is the Consumer Price Index for Urban Wage Earners and Clerical Workers. Because senior citizens spend a lot more than average on medical care, adjustments to their Social Security payments are not keeping up with their cost of living. Your grandmother has two questions: 1. Last year I received $15,000 per year from the government. The story said that the CPI increased from 144 to 162. How much will I get this year

Answer 1

Consumer Price Index for Urban Wage Earners and Clerical Workers

1. You will get $16,875.

Step-by-step explanation:

a) Data:

Last year's Medicare allowance = $15,000

CPI last year = 144

CPI this year = 162

Calculation:

This year's Medicare allowance = $16,875 ($15,000/144 x 162)

Another way of working out this year's allowance for my grandmother is to calculate the percentage increase. This amounts to an increase of 12.5% (162 - 144)/144

This shows that the CPI increased by 12.5% and the Medicare allowance will also increase by 12.5%

Thus, the Medicare allowance for this year will be $16,875 ($15,000 x 1.125)