Question

How do you calculate 1984 constant dollars for the rental revenue if 1984 rental revenue = $13,366.55 and CPI = 103.933?

calculate 2012 constant dollars for the rental revenue. 2012 rental revenue = 40,892.75 and CPI = 229.604?

Answer 1

A constant dollar is an adjusted value of currency used to compare dollar values from one period to another.

CPI is the consumer price index.The CPI allows you to convert anything money related (prices, wages, salaries) from one year to another

The rental revenue in 1984 was = $13,366.55 and CPI(1984) = 103.933

The rental revenue in 2012 is = $40,892.75 and CPI = 229.604

The formula to calculate 1984 constant dollars is "new" CPI / "old" CPI * old price = Price in constant dollars

2012 CPI/1984 CPI *1984 rental revenue = 1984 rental revenue in constant 2012 dollars

229.604/103.933*13,366.55=29,528.77

What this tells us is that $13,366.55 in 1984 was equivalent to $29,528.77 in 2012. $29,528.77 is the 1984 price in constant 2012 dollars. In other words, when you paid $13,366.55 as rental in 1984, it was equivalent to paying $29,528.77 in 2012. We can now compare the actual rental in 2012 to the 1984 rental value in constant 2012 dollars. Since $29,528.77 is less than the $40,892.75 that people were actually paying in 2012, rental was low in 1984 than it was in 2012.

Similarly to calculate 2012 constant dollars for the rental revenue in 2012 is = $40,892.75 and CPI = 229.604 is

40,892.75*103.933/229.604=18,510.59

This tells us is that $40,892.75, in 2012 was equivalent to $18,510.59 in 1984.