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Question

# Use Table $3.4$ to answer the following question. Assuming that all prices have risen at the same rate as the CPI. If someone needed $\ 45,000$ to maintain a certain standard of living in $1996$, how much would be needed to maintain the same standard of living in $2016$?

Solution

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Recall that we can have the CPI ratio as:

\begin{aligned} \text{2016 CPI Ratio}&=\frac{\text{2016 CPI}}{\text{Reference CPI}} \end{aligned}

with 2016 CPI equal to 240, and 1996 CPI equal to 156.9 as reference value, we can have the ratio as:

\begin{aligned} \text{2016 CPI Ratio}&=\frac{\text{2016 CPI}}{\text{Reference CPI}}\\ &=\frac{240}{156.9}\\ &=1.5296 \end{aligned}

The 2016 CPI ratio is 1.5296.

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