How do you convert a price of a good from an earlier time into today's price?
A) Take the earlier price and divide by today's price, then multiply by the ratio of the consumer price index (CPI) today to that of the CPI in the old year.
B) Take the earlier price and multiply by the ratio of the earlier gross domestic product (GDP) deflator to today's CPI.
C) Take today's price and divide by the earlier price in terms of the GDP deflator.
D) Take the earlier price and multiply by the ratio of today's CPI to the earlier CPI.
E) Take the earlier price and multiply by the ratio of the earlier CPI to the current CPI.

Question

Quizplus · Accepted Answer

The best way to convert a price of a good from an earlier time into today's price is by taking the earlier price and multiplying it by the ratio of today's CPI to the earlier CPI. CPI measures the average change in prices over time in a fixed basket of goods and services. This choice takes into account the inflation rate, which is the rate at which prices are increasing over time. The ratio accounts for the changes in prices between the two time periods, and multiplying the earlier price by this ratio gives the equivalent price in today's dollars.

How Do You Convert a Price of a Good from an Earlier