Question

which one is the all time box office movie on 2003 dollar?

Reading: Ch 7 SSE104 In-class exercise- Applying inflation rate to daily life 1. Adjusting for inflation Movie Year Domestic BO (M) Gone with the Wind 1939 $198.7 Titanic 1997 $600.8 Sources: www.the-movie-times.com Suppose the CPI is 180 in year 2003, 160 in year 1997 and 40 in year 1939. Which one is the all-time box office movie in 2003 dollar)? Nominal income, price level and purchasing power Suppose Jane gets a raise in salary of 10% and she finds that her cost of living the price level) has increased by 15%, what happens to her purchasing power? 3. Which job should Jennifer take? Scenario: Jennifer has two job offers: a. Company A in NYC offers her $50,000 b. Company B in Indy offers her $48,000 Jennifer likes these two jobs equally and she is indifferent between a quieter life and a glamorous city life. Her dad, Bob tries to help her make decision. He has come across some CPI data for cities in the US in a magazine one day: CPI in NYC is 120 and CPI in Indy is 8o. 1) Calculate the real income for each city given the offers.

Answer 1

1. The current value of a given amount of Dollars in year X can be given by

Current value=Amount of Dollars in year X*(CPI in current year/CPI in year X).

Putting values, we get

Current value of 198.7 million dollars= 198.7*(180/40)=894.15 million USD.

Hence, Gone with the Wind is the all time box office movie in 2003 dollars.

2. Jane's purchasing power decreases. Lets say Jane was spending all her salary, which was $100, on Bananas earlier, which cost $10 per dozen. She could buy 100/10=10 dozen Bananas. Now her Salary has increased by 10%, so it has become $110. At the same time, cost of Bananas has increased by 15%, now $11.5 per dozen. Now Jane can buy 110/11.5=9.57 Dozen bananas, which is a decrease in her Purchasing power.

In general terms, whenever the cost of living increase is higher than the increase in salary, purchasing power decreases and vice versa.

3. Real wage is nothing but inflation adjusted income.

Lets take Indy as base. So inflation to NY becomes (120-80)/80=50%.

Hence, real income in NY=50000/1.5=$33,333.

Real income in Indy is 48,000 since it was taken as base.