Let’s say your grandmother made $15,000 per year in 1964 and your mother makes $37,000 per year in 2011 and you want to know who made/makes more so you know who to love the most. You can convert grandma’s actual $15,000 salary to 2011 Constant Dollars and see if it’s higher or lower than your mother’s.

Grandma wins as her converted to 2011 constant dollar salary is larger than your mom’s actual salary GrandmaMom 1964 $ 15, nothing 2011 $108, $37,000.00

Your grandma continues emphatically: “I’ve made $15,000 every year since!” You need to demonstrate to her that this is not good; that her buying power has decreased. We can convert each of those years’ salaries to 2011 constant dollars to demonstrate this.

Graphing Electricity Prices (US city average, per KWH) YearPrice 1986$ $ $ $ $ $ $ $ $ $ $ $0.094 Has electricity become more expensive?

Actual Dollar

To Constant Dollar 1997 Price To see the relative expense of electricity in 1986 in terms of 1997 dollars….

ABCD 1Electricity Prices (US city average, per KWH) 21986$ =$C$13/C2*B $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 0.094

Better Portrayal of the Price of Electricity

We saw what the graph looked like when the constant dollar price of Electricity went down relative to the rate of inflation. What would the constant dollar graph look like if electricity increased at the same rate as inflation?