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My dollar is worth what?: activity

Introduction

Prices for consumer goods and services are always changing. In general, prices have increased over time; this is known as inflation. Inflation is a process of continuously rising prices or, equivalently, of a continuously falling value of money. To determine how prices are changing, the Bureau of Labor Statistics (BLS) asks people how much money they spend on various products and services, then data collectors visit thousands of stores each month to collect prices of goods and services throughout the country. After all of the data are collected, BLS is able to calculate the Consumer Price Index (CPI). The inflation calculator will allow you to easily determine changes in the buying power of a dollar. Buying power is the amount of goods and services that can be purchased with a unit of currency, in our case U.S. dollars.

Objective

After completing this activity, you will better understand inflation, be able to locate the BLS inflation calculator, and identify BLS as the primary federal agency responsible for publishing inflation measures.

Activity

You can use the inflation calculator to determine the value of goods in years past and convert prices from years ago into today’s prices. For example, in 1997, electricians earned, on average, $17.50 per hour, which has the same buying power as about $27.00 in today’s dollars. In 2017, electricians actually earned $27.84 per hour on average! Electricians now earn about 84 cents more in 2017 compared to the buying power of what they were paid in 1997.

Question 1: Which amount has more buying power: $50.00 in January 1990, or $100.00 in January 2017?

Answer: $100 in January 2017 has more buying power than $50 in January 1990. The amount of $50.00 in January 1990 has about the same buying power as $95.31 in January 2017. This is an estimate based on prices across the country.

Question 2:Your grandfather says to your little brother, “In 1970, I never left home without a $5.00 bill.” What amount of money in June 2017 has the same buying power as $5.00 in June 1970?

Answer: In June 2017, $31.57 has the about same buying power as $5.00 in 1970!

Discussion:

Discuss inflation. For which items have your students noticed price changes? How have these changes affected them and their families?

Visit the Bureau of Labor Statistics Consumer Price Index (CPI) webpage for more information about inflation.

Practice makes perfect!

1. In 2000, mathematicians earned $67,770 per year. What amount of money would mathematicians need to earn today to have the same buying power?
2. Your grandmother says that her allowance was one dime ($0.10) in June 1950. What amount has the same buying power today?
3. Police officers in 1997 earned, on average, $18.17 per hour. What amount would police officers need to earn today to have the same buying power?
4. In January 2012, Daniel’s parents began giving him an allowance of $5.00 per week for completing household chores. Today, Daniel is still receiving $5.00 per week for completing the exact same chores. Daniel wants to ask his parents for a raise so that he starts receiving the amount of money that would give him the same buying power as the $5.00 in January 2012. What amount should Daniel ask for?
5. Rebecca’s grandparents gave her a $20 bill for her birthday in September 2005. Rebecca hid the bill in her room and forgot about it. She then found the money in October 2011. Because of inflation, the buying power of the $20 bill has decreased. What amount in October 2011 has the same buying power as the $20 did in September 2005?
6. Your parents approach you and say that for getting good grades in school, they will give you money. They know you have been learning about inflation in school so they give you two options: 1. you can have $100 today, or 2. you can have the amount of money today that has the same buying power as $50 in 1970. Which option do you choose?
7. On average, dentists earned $43.89 per hour in 1997. In 2016, they earned $85.90. Did dentists have more buying power in 1997 or 2016 based only on their salary?
8. In June 2010, Janet deposited $150 into a bank account that, over the course of 5 years, earned a total of 7.5% in interest. When Janet went to withdraw the money in June 2015, the bank manager said to Janet that she can have the $150 plus the amount earned in interest, or they could give her the amount of money in June 2015 that has the same buying power as $150 in June 2010. Which should Janet choose?

Become the inflation calculator

An index is a tool that simplifies the measurement of movements in a numerical series. BLS sets an average index level (representing the average price for an item or set of items) equal to 100, then measures change compared to that period. For example, an index of 110 indicates a 10% increase in price(s) since the base period (which is the period when the index equaled 100). You can measure the change between any two indexes in the same series (see example below). In the following scenarios, you will be provided the actual Consumer Price Index for All Urban Consumers (CPI-U) U.S. city average series for all items, not seasonally adjusted in various years. This is often referred to as the “official CPI” because it is the broadest and most comprehensive. Calculate the percent change between the indexes, and manually adjust the dollar amount to reflect the buying power. Be sure to show your work.

1. CPI-U October 1992: 141.8
   CPI-U June 2017: 244.955
   $5.00 in October 1992 had the same buying power as __________ in June 2017.
   
   Calculations: 244.955 − 141.8 = 103.155
   103.155 ÷ 141.8 = 0.727468 or 72.75 percent increase
   $5.00 × 1.727468 = $8.637341
   Double check using the online inflation calculator = $8.64
2. CPI-U January 1971: 39.8
   CPI-U December 2016: 241.432
   $25.00 in January 1971 had the same buying power as __________ in December 2016.

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4. CPI-U August 1913: 9.9
   CPI-U January 2015: 233.707
   $100 in August 1913 had the same buying power as __________ in January 2015.

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6. CPI-U July 1963: 30.7
   CPI-U February 2012: 227.663
   $40 in July 1963 had the same buying power as __________ in February 2012.

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8. CPI-U February 2011: 221.309
   CPI-U June 2017: 244.955
   $15 in February 2011 had the same buying power as __________ in June 2017.

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10. CPI-U August 1958: 28.9
    CPI-U September 2011: 226.889
    $1 in August 1958 had the same buying power as __________ in September 2011.

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12. CPI-U March 2008: 213.528
    CPI-U July 2017: 244.786
    $1,000 in March 2008 had the same buying power as _________ in July 2017.

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    Last Modified Date: June 22, 2018