Question

Sue holloway was an accountant in 1944 and earned $12,000 that year. her son, josh holloway, is an accountant today and he earned $210,000 in 2013. the price index was 17.6 in 1944 and 218.4 in 2013. refer to scenario 24-3. in real terms, sue holloway's income amounts to about what percentage of josh holloway's income?

Answer 1

Answer: Sue Holloway's salary is 70.9% of Josh Holloway's income in real terms.

We arrive at the answer as follows:

We have

Sue's Income  in 1944 :  $12000

Price index in 1944 : 17. 6

Josh's income in 2013 : $2,10,000

Price Index in 2013 : 218.4

In order to find Josh's income in real terms, we need to calculate what Josh's income might have been in 1944, when the price index was 17.6. We can calculate this as follows:

$Josh's Income_{real terms} = Current Salary *( \frac{Price Index in 1944}{Price index in 2013})$

$Josh's Income_{real terms} = 2,10,000 *( \frac{17.6}{218.4})$

$Josh's Income_{real terms} = 16,923.0769$

Now that we have Josh's income in real terms, we can compute Sue's salary as a part of Josh's real income.

$\frac{Sue's Salary}{Josh's real income}  = \frac{12000}{16923.0769}$

$\frac{Sue's Salary}{Josh's real income} = 0.70909$