In 2015, the Consumer Price Index (CPI) was 238, whereas it was about 100 in 1982. Suppose that one of your parents had a job that paid $28,000 annually in 1982 and a job that paid $60,000 annually in 2015. Relative to 1982, we could say that your parent's nominal income in 2015 and that your parent's real income in 2015.

Question

Damaris Lam

Business

24 May, 13:52

In 2015, the Consumer Price Index (CPI) was 238, whereas it was about 100 in 1982. Suppose that one of your parents had a job that paid $28,000 annually in 1982 and a job that paid $60,000 annually in 2015. Relative to 1982, we could say that your parent's nominal income in 2015 and that your parent's real income in 2015.

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Cayden White · Answer 1

The nominal income increased from $28000 in 1982 to $60000 in 2015, resulting in an increase of $32000.

However, the real income in 2015 when compared to 1982 is only worth $25210 in 2015 (as contained below)

The implication is that $28000 in 1982 commands more baskets of commodities than $60000 earned in the year 2015.

Explanation:

Real income in 2015 = (nominal income in 2015/CPI in 2015) * CPI in 1982)

Real income in 2015=$60000/238*100

Real income in 2015=$25210