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choco1433 choco1433
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Mr. Smith earned a salary of $5,000 in 1980, while his son earned a salary of $8,000 in 2010. If the price index was 100 for 1980 and 198 for 2010, whose salary was worth more? Explain your answer.
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Macroeconomics


Edition: 3rd
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brassgodbrassgod
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To find out whose salary was higher, we need to convert Mr. Smith's salary into 2010 dollars. The value of Mr. Smith's salary in 2010 can be obtained by using the formula:
Value in 2010 = (Price Index for 2010 / Price Index for 1980) × Value in 1980
 = (198/100) × $5,000 = $9,900
Therefore, Mr. Smith's salary was worth more in 1980 than his son's salary was worth in 2010.

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