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In: Economics

Comparing salaries from different times Consider golfers who led the Professional Golfers’ Association of America (PGA)...

Comparing salaries from different times

Consider golfers who led the Professional Golfers’ Association of America (PGA) in winnings at different points in time. Note that the winnings are nominal figures (unadjusted for inflation).

To convert the original earnings of Nicklaus, Watson, and Kite, use the formula for converting dollar figures from an earlier era into year 2017 U.S. dollars. Using those figures, fill in the following table, making sure to round your responses to the nearest U.S. dollar.

Year

Golfer

Nominal Winnings

U.S. CPI

Winnings in 2017 Dollars

(Dollars)

(1983 = 100)
1965 Jack Nicklaus 140,752 31.5 ?
1980 Tom Watson 530,808 82.4 ?
1981 Tom Kite 375,699 90.9 ?
2017 Justin Thomas 9,921,560 245.1 9,921,560

True or False: According to the previous table, the golfer with the highest PGA winnings in nominal dollars is not the same as the golfer with the highest PGA winnings after adjusting for inflation.

Solutions

Expert Solution

Answer:

Year

Golfer

Nominal Winnings

U.S. CPI

Winnings in 2017 Dollars

(Dollars)

(1983 = 100)

1965

Jack Nicklaus

140,752

31.5

1,095,184.61

1980

Tom Watson

530,808

82.4

1,578,896.13

1981

Tom Kite

375,699

90.9

1,013,023.38

2017

Justin Thomas

9,921,560

245.1

9,921,560

Winnings in 2017 dollars = Nominal winnings * [CPI in 2017/CPI in 1965]

= 140,752 * 245.1 / 31.5 = 1,095,184.61

Winnings in 2017 dollars = Nominal winnings * [CPI in 2017/CPI in 1980]

= 530,808 * 245.1 / 82.4 = 1,578,896.13

Winnings in 2017 dollars = Nominal winnings * [CPI in 2017/CPI in 1981]

= 375,699 * 245.1 / 90.9 = 1,013,023.38

According to the previous table, the golfer with the highest PGA winnings in nominal dollars is not the same as the golfer with the highest PGA winnings after adjusting for inflation.

False, as the golfer with highest PGA winnings in nominal dollars is the same as the golfer with highest PGA winnings after adjusting for inflation.

Rahul Sunny answered 1 year ago
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