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Math Help - Real and Nominal Quantities. (CPI Index)

  1. #1
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    Real and Nominal Quantities. (CPI Index)

    In 1982 to 1984, the base period used for the consumer price index, the average earnings of construction workers were 442.74 per week. By 1989 the earnings of construction workers had reached $506.72 per week, but the consumer price index had risen to 124.0 What were construction workers real earnings in 1989 stated in 1982-1984 dollars?

    Im a little lost on this one. I use the CPI index forumala right? CPI= (base-year market basket valued at current-year prices)/ Base-year market basket values in base year prices) X 100

    Could someone point me in the right direction? I have been trying to alter the numbers to get a price index of 124.
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  2. #2
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    Quote Originally Posted by na300zx View Post
    In 1982 to 1984, the base period used for the consumer price index, the average earnings of construction workers were 442.74 per week. By 1989 the earnings of construction workers had reached $506.72 per week, but the consumer price index had risen to 124.0 What were construction workers real earnings in 1989 stated in 1982-1984 dollars?

    Im a little lost on this one. I use the CPI index forumala right? CPI= (base-year market basket valued at current-year prices)/ Base-year market basket values in base year prices) X 100

    Could someone point me in the right direction? I have been trying to alter the numbers to get a price index of 124.
    Use (1+n)=(1+r)(1+\pi) where n is the nominal rate, r is the real rate and \pi is inflation

    The CPI will tell you inflation \frac{124-100}{100}=.24
    The earning will tell you nominal rate \frac{506.72-442.74}{442.74}
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