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6 . Problems and Applications Q1 Suppose that you were born in 2001. Also, suppose that your mother received a $100 baby shower gift at your birth. How much would it cost to buy a similar amount of goods and services in 2018, given that the CPI was 177.1 in 2001 and 251.1 in 2018

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Answer:

  • $70.53

Explanation:

CPI is the customer price index. By comparing the CPI at two different moments you can tell the comparative value of the money:

  • Value in year XX = Value in year YY × CPI year YY / CPI year XX

Hence, the value in the year 2,018 of $100 received in 2,001 is:

  • Value in 2,018 = Value in 2,001 × CPI in 2,001 / CPI in 2,018

  • Value in 2,018 = $100 × 177.1 / 251.1 = $70.53 ← answer

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