ohok asked in Social ScienceEconomics · 1 decade ago

Can someone check my inflation rate calculations?

"In 2002, Annie, an 80-year-old, is telling her granddaughter Suzie about the good old days. She says that in 1932, when she was a child, you could buy a nice house for $15,000 and a jacket for $5. Suzie looks up some current prices and finds that a house that costs $200,000 and a jacket that costs $50 are today's equivalent of the ones that Annie says cost so little when she was a child. Suzie, an economics student, looks up the CPI for 1932 and discovers that it is 13.7. The reference base is 1982-1984. The CPI for 2002 is 180.3. "

I came up with this for the inflation rate:

From 1932 - base year, inflation rose 86.3%

From 1932 - 2002, inflation rose 1216%

Is that right or did I do something wrong? I need to find out what the lower cost was for those years.


I thought I needed to the know other inflation because they ask me which cost more, 15,000 in 1932 or 200,000 in 2002. Then in the next question they ask me about the wages, so would I need to figure out the wages and apply that to the first question to figure out which one had a higher cost at those times?

1 Answer

  • 1 decade ago
    Favorite Answer

    Well you're half right. That's not a RATE but it is the total amount of inflation to 2002.

    (180.3 - 13.7) / 13.7 = 12.16 or 1216% total inflation.

    Your 86.3% number to the base year is wrong ... you forgot to divide 86.3 by 13.7. But I don't know why you'd need that anyway.

    EDIT -

    I see, since you know the total inflation from 1932 - 2002, you just need to compare THAT increase, to the increase you get from 15000 to 200,000 using the same math. And warning, think carefully about what the answer means to tell which costs more.

    If you have a typical wage for 1932 versus 2002, just do the same math to find that total increase.

    You can just compare those total increases against each other, without any regard to the base year itself.

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