Question

the cpi in 1970 was 38.8. the cpi in 2007 was 207.3. the purchasing power of $50,000 in 1970 was ____ the purchasing power of $200,000 in 2007.
a. less than
b. more than
c. the same as
d. not comparable to
please select the best answer from the choices provided
a
b
c
d

Explanation:

Step1: Understand CPI and purchasing power

CPI (Consumer Price Index) measures the change in prices over time. To compare purchasing power, we can adjust the 1970 amount to 2007 dollars using the formula: \(\text{Adjusted amount in 2007} = \text{Amount in 1970} \times \frac{\text{CPI in 2007}}{\text{CPI in 1970}}\)

Step2: Calculate the adjusted amount

Given, amount in 1970 = \$50,000, CPI in 1970 = 38.8, CPI in 2007 = 207.3.
So, adjusted amount = \(50000\times\frac{207.3}{38.8}\)
First, calculate \(\frac{207.3}{38.8}\approx 5.3428\)
Then, \(50000\times5.3428 = 267140\)

Step3: Compare purchasing power

The adjusted amount of \$50,000 in 1970 (in 2007 dollars) is \$267,140, which is more than \$200,000. So the purchasing power of \$50,000 in 1970 is more than that of \$200,000 in 2007.

Answer:

b. more than