Suppose a person earned 100 in 1989 and the average

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Unformatted text preview: o. Whether you are worse off than the person living in 1989 depends on how much incomes rose compared to how much prices rose. Suppose a person earned $100 in 1989 and the average price was $1 per unit. That person could buy 100 units of a good. Now suppose a person earns $161 today and the average price of goods is $1.61. Well, then, the person can still buy 100 units of a good. In other words, a person whose income rises by the same rate as prices is no better and no worse off. Again suppose a person earned $100 in 1989 and the average price of goods was $1. The person could buy 100 units of a good. Now suppose a person earns $150 today and the average price of goods is $1.61. Now the person can buy only 93 If you have some basic information, you can use these steps to calculate the CPI. EXHIBIT Calculating the CPI involves this process: 1. Calculate the total dollar expenditure on the market basket in the base year and the total dollar expenditure on the market basket in the current year. 2. Divide t...
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