Question

The CPI was 172 in 2007, and the CPI was 46.5 in 1982. If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982

Answer 1

The amount needed in the year 2007=$3,698.92

Step-by-step explanation:

This price index is the weighted average price of a basket of goods and services consumed by a typical consumer. It is used to measure the rate of inflation.

A rise in the price index implies inflation

Inflation is the increase in the general price level. Inflation erodes the value of money.

So we can determine the amount required today to buy goods worth $1000 in 1982 as follows:

CPI in the current year /CPI base year× Cost in base years

(CPI in 2007/CPI in 1982) × Cost in 1982

172/46.5× 1000 =$3,698.92

The amount needed in the year 2007=$3,698.92