Question

The nominal price of a college education rose to $15,212 in 2009. The CPI was 107.6 in 1985, 130.7 in 1990, and 144.0 in 2009.
A)What was the real price of a college education in 2009 in terms of 1985 dollars?
B) What was the real price of a college education in 2009 In terms of 1990 dollars?

MUST SHOW ALL OF YOUR WORK

Answer 1

Real Price$_{z}$ =  (Nominal Price$_{z}$ ) ×  $\frac{CPI _{base year} }{CPI{} _{z} }$

A. Real price in terms of 1985 dollar = 15212× ($\frac{144.0}{130.7}$)= $20358.07

B. Real price in terms of 1990 dollar =15212 × ($\frac{144.0}{130.7}$)= $16759.97