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Inflation student Copy

By heyElaine1111 Apr 22, 2015 453 Words
INFLATION – THE GOOD OL’ DAYS

Learning outcome:

Upon completion student will be able to:
Correct for inflation when comparing the cost of an item over time.

Scoring/Grading rubric:
Each question is worth 10 points.

Introduction:

Everyone has heard someone say something like: “Back in my day…a cup of coffee cost only a quarter.” In this activity, we are interested in calculating how many current dollars that cup of coffee, or batch of cookies, or hourly wages would be equivalent to.

1. Suppose a winter jacket costs $80 in 2003 and inflation was measured at 27% over the period from 2003 to 2013. If all other variables were to remain constant, how much would that jacket cost in year-2013 dollars? Use the inflation formula below to complete this calculation: D “Year- 1 dollars” = D(1 + r) “Year- 2 dollars”

2. If a gallon of gas cost $0.36 in 1970 and $2.78 in 2010, what was the rate of inflation over this time period?

3. Go to the Bureau of Labor Statistics CPI Inflation Calculator using the following link:

http://www.bls.gov/data/inflation_calculator.htm

Go back to question 2 and verify the cost of a gallon of gas in 2010 by using the inflation calculator. If the price is different, write a few sentences on reasons why the price is different. What incorrect assumption was made when you were asked to calculate the inflation in question 2?

4. Say that you overheard an elderly individual talk about how a cup of coffee cost a quarter in 1960. How much would that cup of coffee cost in 2013? Does your answer seem reasonable? Explain.

5. Go to the Bureau of Labor Statistics to look up the average price of cookies over the years by using the following link: http://data.bls.gov/timeseries/APU0000702421

Complete the following table

January, Year
Cost of Cookies per pound
Correct for Inflation: year-2013 Dollars
Inflation to 2013
Jan 1980
$2.774
$4.23
183%
Jan 1985

Jan 1990

Jan 1995

Jan 2000

Jan 2005

Jan 2010

Jan 2013

6. Look at the Corrected for Inflation prices. Prior to this exercise, what did you expect the corrected prices to look like?

7. Hypothesize factors which cause the inflation prices to not always be the same.

8. What conclusions can you make regarding the price of food?

9. Repeat this exercise comparing hourly earnings by using the following link: http://data.bls.gov/cgi-bin/surveymost?ce

Be sure to select a category with “Average Hourly Earnings” in the description.

What category did you select? _________________________________

Year
Hourly Wage
Correct for Inflation: year-2013 Dollars
Inflation to 2013

10. Write several meaningful sentences comparing how hourly earnings have changed over time when corrected for inflation.

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