Adjusting for Inflation: How Much Money Do You Need in 1990?

Question:

If you had $60 in 1960, how much would you have needed in 1990 to purchase the same amount of goods and services?

Answer:

The amount one needed in 1990 to purchase the same amount of goods and services was $185.45.

Equivalent Amount in 1990 = (CPI in 1990 / CPI in 1960) * Amount in 1960.

We will use the formula for adjusting for inflation to calculate the equivalent amount needed in 1990 to purchase the same goods and services as $60 in 1960.

Equivalent Amount in 1990:

= (CPI in 1990 / CPI in 1960) * Amount in 1960

= (170 / 55) * $60

= $185.454545 = $185.45

Final answer:

The inflation rate from 1960 to 1990 is 1.09 or 109%. Using the formula, the amount needed in 1990 is approximately $129.40.

Explanation:

To calculate the inflation rate, we can use the formula:

Inflation Rate = (Current CPI - Initial CPI) / Initial CPI

Substituting the given values, we have:

Inflation Rate = (170 - 55) / 55 = 1.09

This means that the price level increased by 109% from 1960 to 1990. To find out how much money you would need in 1990 to purchase the same amount of goods and services as $60 in 1960, we can use the formula:

New Amount = Initial Amount × (1 + Inflation Rate)

Substituting the values, we get:

New Amount = $60 × (1 + 1.09) = $129.40

So, you would need approximately $129.40 in 1990 to purchase the same amount of goods and services as $60 in 1960.