1. Consumer Price Index continued

2. With the consumer price index we’re able to compare prices and salaries from year to year. Let’s say your grandmother made $15,000 per year in 1964 and your mother makes $37,000 per year in 2010 and you want to know if your grandmother made more or less than your mother. You can convert grandma’s actual $15,000 salary to 2010 Constant Dollars and see if it’s higher or lower than your mother’s.

3. Grandma wins

4. Graphing Let’s say you make $100 every year for 10 years. Year Actual Salary in Dollars 2001100 2002100 2003100 2004100 2005100 2006100 2007100 2008100 2009100 2010100

5. Actual Dollar Graph

6. Actual vs. Constant Dollar Since the value of the dollar decreased each year, this graph is not a realistic depiction of your salary over this period. Constant Dollar Salary is not represented

7. Creating the Spreadsheet Let’s convert all of these values to 2010 constant dollars so we can see whether our $100 is keeping up with inflation Year Actual Salary in dollars 2001100 2002100 2003100 2004100 2005100 2006100 2007100 2008100 2009100 2010100

8. To Constant Dollar 2010 Salary To see the relative salary of 2001 in terms of 2010 dollars….

9. What if? You got a 1% raise each year? Actual Dollar graph? Constant Dollar Graph?

10. What if? You got a 3% raise? Actual Dollar Graph? Constant Dollar Graph?

11. Graphing Electricity Prices (US city average, per KWH) YearPrice 1986$0.077 1987$0.079 1988$0.080 1989$0.082 1990$0.084 1991$0.087 1992$0.088 1993$0.092 1994$0.092 1995$0.094 1996$0.094 1997$0.094 Has electricity become more expensive?

12. Actual Dollar

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

14. ABCD 1Electricity Prices (US city average, per KWH) 21986$0.077109.60 =$C$13/C2*B2 31987$0.079113.60 $ 0.112 41988$0.080118.30 $ 0.109 51989$0.082124.00 $ 0.106 61990$0.084130.70 $ 0.103 71991$0.087136.20 $ 0.102 81992$0.088140.30 $ 0.101 91993$0.092144.50 $ 0.102 101994$0.092148.20 $ 0.100 111995$0.094152.40 $ 0.099 121996$0.094156.90 $ 0.096 131997$0.094160.50 $ 0.094

15. Better

16. Scenario for 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?