A particular model of car costs $17,000 in 1998 and $28,000 in 2005, given in current dollars for each year. How much are each of these values worth in constant 2002 dollars? Use the U.S. CPI values from Table 3-1.

Question

	Consumer Price Index (CPI), U.S.	Consumer Price Index (PPI), U.S.	Consumer Price Index (CPI), U.K.
1997	87.4	95.5	96.3
1998	94.7	94.7	97.9
1999	96.7	96.4	99.1
2000	100	100	100.0
2001	102.8	102	101.2
2002	104.5	100.7	102.5
2003	106.9	103.8	103.9
2004	109.7	107.6	105.3
2005	113.4	112.8	107.4
2006	117.1	116.2	109.9

Accepted Answer

Values from the table are used to convert to constant 2002 dollars, for $17,000 in 1998 dollars and $28,000 in 2005 dollars, respectively:

[latex]\begin{aligned} &\$ 17,000\left(\frac{104.5}{94.7} ight)=\$ 18,763 \ &\$ 28,000\left(\frac{104.5}{113.4} ight)=\$ 24,986 \end{aligned}[/latex].

1998 dollars × (104.5)/(94.7) = $18,763

Thus even after factoring out inflation, the cost of this car model has risen considerably in real terms

Question 3.1: A particular model of car costs $17,000 in 1998 and $28,000 ...

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