CPI

Mathematical and Technological Literacy I
Assignment 5: Consumer Price Index

In 1950 the median family income was $3,319, while the average Major League baseball player salary was $13,228. In 1998 the median household income was $38,885, while the average Major League baseball player was $1.4 million.

a. Using the CPI.xls, convert each of the 1950 incomes to constant 1998 dollars and compare the salaries of baseball players and the average household to each other and to their actual 1998 values. Put the constant dollar values in your word document.

b. Have baseball player salaries risen faster than the salaries of the average worker? By what percent are the actual incomes in 1998 larger than the constant dollar values of the 1950 incomes? Show your work for both the median household and the baseball player.

c. Why do you think that, even when inflation is taken into account, the median income of the average household has increased? Why do you think that, even when inflation is taken into account, the median income of the baseball player has increased? In a short paragraph, speculate on the economic and cultural changes that have occurred from 1950 to 1998 that might help account for these changes. [Hint: The correct answer is NOT "inflation" or "the economy."]

2. Open the file DePaul_Tuition.xls. This file contains the DePaul tuition from 1970 to 2010. Take a look at the data. Note the asterisks on some of the figures.

a. Calculate the tuition in constant 2010 dollars. Then make an XY scatter graph of DePaul tuition in constant dollars and paste it into your document.

b. If the price of an item increases at the same rate as inflation, what would the constant dollar graph for that item look like?

c. What does the graph of DePaul tuition in constant 2010 dollars tell you about tuition increases over the years? Is DePaul tuition growing faster, slower, or at the same rate as inflation from 1970 to about 1980? What about from 1980 to 2010?

d. Why do you think DePaul's tuition has grown the way it has? Do you think the tuition growth at DePaul is similar to the tuition growth at other universities? What factors may be affecting the cost of higher education? Give your answer in the form of a well written paragraph. [Hint: The correct answer is NOT "inflation" or "the economy."]

3. The annual inflation rate is defined as the percentage change in the annual CPI from the previous year to the current year. For example, the CPI in 1998 was 163.0 while the CPI in 1999 was 166.6. The inflation rate for 1999 was therefore (166.6-163.0)/163.0 or 2.2%.

    a. Open the file CPI.xls, which contains the annual CPI from 1912 to 2010. Add a new column to the table that contains the inflation rate for each year. Paste the resulting table for the years 1970-2010 into your Word document. Please do not paste the entire table from 1912-2010 into the document; we want to focus on the years 1970-2010.

    b. Make an XY scatter graph of the inflation rate from 1970 to 2010. Paste it in your Word document.

    c. In a well written paragraph carefully describe the graph you made in b. Remember to mention aspects such as increasing, decreasing, absolute and relative maximum and minimum.

d. High inflation means that the prices of goods increases a lot and that money we earn and have saved up in the past is worth less. Interest rates for houses, cars, and credit cards rise if the inflation rate is high. For a variety of reasons, stock prices tend to fall even on hints of higher inflation. According to these facts and the graph you made above, what years were the most financially challenging? Why?