Question

At the time of Jack’s 10-year high school reunion he was making $55,000 a year and the CPI was 115. Now that it is time to attend his 25-year high school reunion, Jack’s income has risen to $65,000 a year and the CPI is 130. At his 25-year reunion, can Jack rightfully brag that his real income has risen since the last time he saw his former classmates fifteen years ago? In other words, has Jack’s real income kept up, not kept up or more than kept up with inflation? Explain. In answering this question, you must:

a. calculate the real income at his 10 year reunion.

b. calculate the real income at his 25 year reunion.

c. compare real income calculations in parts a and b. Did Jack’s real income rise, fall or stay constant?

d. calculate how much price has risen in percentage terms—calculate the inflation rate-- between the 10-year high school reunion and 25 year high school reunion.

e. calculate how much income has risen from $55,000 to $65,000 in percentage terms between the 10-year high school reunion and 25 year high school reunion.

f. compare the percent rise in income to the percent rise in price from your calculations in parts d and e.

g. State your conclusion by explaining your findings from your calculations in parts a, b c,d,e, and f.

Please show your work and all calculations!

Answer 1

According to the question

AT 10 year reunion

JACK's Nominal income = 55,000$

consumer price index = 115

AT 25 year reunion

JACK's Nominal Income = 65,000$

consumer price index = 130

Real income = nominal income x 100/ Consumer price index

A) Real income at 10 year

Real income = 55,000 X 100/ 115= 47,826$

B) Real income at 25 year

Real income = 65,000 X 100/130 = 50,000$

C)according to the question the real income in part A an B the real income of jack is increased by $2174

D) inflation rate can be calculated by measuring the consumer price index between two years

Inflation rate = CPI₂₅-CPI₁₀/CPI₁₀ X100

Inflation rate -= 130-115/115 X 100= 13.04%

E) income rise from 10 year reunion to 25 year reunion

= 65,000- 55,000= 10,000

= 10,000/ 55,000 X 100 = 18.18%