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Indicate whether the following statement is TRUE or FALSE and explain your answer: A unique stamp...

Indicate whether the following statement is TRUE or FALSE and explain your answer: A unique stamp purchased some years ago for $2000 is now worth $60000. In the same time the CPI has gone from 4 to 160. This means that the real (inflation adjusted) value of the painting has increased (hint: you can use common sense, you do not need to use any ‘formulas’).

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Answer #1

The CPI has increased from 4 to 160. Now, a rise in CPI implies that there is inflation in the economy. In other words, when an economy experiences inflation, the CPI rises. CPI is the measure of the average change of the price that a consumer has to pay for purchasing goods and services.

We can use the formula to find the actual price of the stamp in the final year,

Actual Price = Old price * ( New CPI / Old CPI)

Actual Price = 2000 * (160 / 4) = 80,000.

The change in price (60,000) is less, than that of the actual price (80,000)

Thus, the given statement is False.

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