Mathematical and Technological Literacy I Assignment 5: Consumer Price Index

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1. 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.

    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?

    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.

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%.  

    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?