The nominal price of a desk increased from $20 in 2005 to $65 in 2016.The Consumer Price Index (CPI)was 125 in 2005 and 250 in 2016.We can say that
A) the real price of a desk increased over time.
B) the real price of a desk fell over time.
C) the real price of a desk has not changed over time.
D) There is not enough information to determine the real price of a desk.

Question

Quizplus · Accepted Answer

The real price of a desk is calculated by adjusting the nominal price for inflation, using the CPI. The formula for calculating the real price in 2016 dollars is: (Nominal Price in 2005 / CPI in 2005) * CPI in 2016. Using the given numbers: ($20 / 125) * 250 = $40. Since the nominal price in 2016 is $65 and the real price in 2016 dollars is $40, the real price of the desk has indeed increased over time.

The Nominal Price of a Desk Increased from $20 in 2005