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In: Economics

Inflation Over A Lifetime 1515 unread replies.1515 replies. Just based on inflation, how much would we...

Inflation Over A Lifetime 1515 unread replies.1515 replies. Just based on inflation, how much would we have to make today to buy the same items in the year you were born?

Let's assume to buy a house in the year you were born, it would cost $100,000. The prices of houses have gone up for a number of reasons, but some of that increase has been due to inflation. How much inflation have we had in your lifetime? What is the amount that you would need today to buy $100,000 worth of goods the year you were born?

Use the inflation calculator on the BLS website to see what the change has been. Next include how much money you would need today to buy $100,000 worth of goods the year your parents and grandparents were born. How much inflation have we had (as a total percent) since your birth, your parent's and grandparent's births?

- I was born in 2000

- My parents were born in 1969 & 1971

- My grandparents were born in 1936

Solutions

Expert Solution

Answers can be calculated using the following resource on the bls.gov site.

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

Ans1. You will be requiring $154,194.31 to buy $100000 worth of goods the year you were born.

To find out the total inflation we will need to apply the formula of Consumer Price index i.e

CPI = Cost of a basket of goods & services in the current period/Cost of a basket of goods & services in the base year * 100 = Ct/C0 *100.

CPI = $154,194.31/$100000*100= 154.19% i.e inflation has increased by 54.19%(Value above 100 will be taken as 100 is base). The total inflation in a lifetime has been 54.19%

As per the D.O.Y of your Parent1.$, 653,969.85 will be required to buy goods worth Rs $100,000 in the year she was born.

The total increase in inflation in this case is,

CPI = Cost of a basket of goods & services in the current period/Cost of a basket of goods & services in the base year * 100 = Ct/C0 *100.

CPI =$653,969.85 /$100000*100= 653.96%.194 i.e inflation has increased by 553.96%(Value above 100 will be taken as 100 is base)

As per the D.O.Y of your Parent2, $731,123.60 will be required to buy goods worth Rs $100,000 in the year he was born.

The total increase in inflation in this case is,

CPI = Cost of a basket of goods & services in the current period/Cost of a basket of goods & services in the base year * 100 = Ct/C0 *100.

CPI =$731,123.60 /$100000*100= 731.12% i.e inflation has increased by 631.12%.(Value above 100 will be taken as 100 is base)

As per the D.O.Y of your Grandparent, $1886086.96 will be required to buy goods worth Rs $100,000 in the year she was born.

The total increase in inflation in this case is,

CPI = Cost of a basket of goods & services in the current period/Cost of a basket of goods & services in the base year * 100 = Ct/C0 *100.

Note: As years were given only. I have taken January as a month of birth for all.

CPI =$1886086.96 /$100000*100= 1886.08% i.e inflation has increased by 1786.08%.(Value above 100 will be taken as 100 is base)


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