Question

Sue Lewis was an accountant in 1943 and earned $12,000 that year. Her son is an accountant too and he earned $220,000 this year. Suppose the price index was 18.9 in 1943 and 20.5 in the current year. Sue's 1943 income in current year dollars is

Answer 1

Answer 15,000

Explanation:

Answer 2

Sue's 1943 income in the current year dollars is $13,016.

• The price index reflects the average level of prices and can be used to compute the relative differences in the prices of the same basket of goods between some periods.

Data and Calculations:

Sue's 1943 income = $12,000

Son's income in the current year = $220,000

Price index in 1943 = 18.9

Price index in the current year = 20.5

• Sue's 1943 income in current year dollars = $13,016 ($12,000 x 20.5/18.9)

Thus, Sue's earnings in 1943 is $13,016 in current year dollars.

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