Suppose in the year 2000 Ken earned $60,000 per year. If the CPI in the year 2000 was 172.2 and in 2015 was 236.7, what is the minimum level of income Ken would have needed to earn in 2015 to have maintained the same standard of living he had in 2000?

$82,473.87

Explanation:

Consumer Price Index(CPI ): This is the weighted average price of a basket of goods and services consumed by a typical consumer. It is used to measure the rate of inflation.

The increase in the CPI is taken to be the rate of inflation. For example, If the the CPI rises to 100 to 105  this implies an inflation rate of 5% within the time period in focus.

So we can out the minimum level of income Ken need in 2015 to maintain the same standard of living as year 2000 if the CPI rises from 172.2 to 236.7 as follows:

= 236.7/172.2 × $60,000

=   $82,473.87

Minimum level of income = $82,473.87

Ken must earn $82473.87 in 2015 to meet the same standard of living

Explanation:

We will get the CPI growth rate and then we will adjust the salary with the growth rate , firstly the formula for CPI growth rate = (CPI current- CPI previous)/ CPI previous

which here the previous CPI was in year 2000 and the current CPI is in year 2015.

now we substitute to the above mentioned formula

(236.7- 172.2)/172.2 X 100 = 37.46%

now to adjust the salary to the consumer price index $60000 x (1+37.46%)= $82473.87 That Ken must earn to meet the same standard of living.

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