Homework question involving Consumer Price Index?
Hey, this is a question I have had a hard time trying to figure out-
Paula purchased a share for $20 in 1990, which she sold for $80 in 2010. If the
CPI increased by 200% between 1990 and 2010, Paula’s profit after accounting
for inflation is ???
Could someone please help to show how to work this question out.
- Anonymous9 years ago
Her nominal profit is simply $80 - $20 = $60.
We need to know her real profit, in 1990 dollars.
Nominal = Real*CPI
$60 = Real*200%
$60 = Real*2
$60/2 = Real
$30 = Real
Her profit after inflation is $30.