Question

It is the year 2060, and you are talking (or perhaps telepathically communicating) with your grandchildren. "Grandparental Unit" they say, "is it true that when you were in college, a gallon of gasoline cost $2.00?" "Grandchildren" you reply, "you know it is true, because by this point you have already directly downloaded the complete history of gasoline prices for the past 100 years into your cyberbrain. Still, you should not be fooled by this price, because it is nominal, not real." "Say what? Gasoline today costs $15 per gallon. That is clearly very expensive compared to gasoline when you were in college. Your cyberbrain is clearly an old, inferior model." You angrily reply "Turn your sassback unit down by 20%, grandchildren. Your parental units would not be happy to hear you talk to me that way. Besides, you must keep in mind that the Consumer Price Index was 240 when I was in college. Now it is 2400. This means that if I were to convert the 2016 price of $2.00 into year 2060 dollars, it would become..." What will you tell your grandchildren? You have the following facts: CPI in 2016 was 240. CPI in 2060 is 2400. The price of gasoline in 2016 is $2.00 per gallon. The price of gasoline in 2060 is $15 per gallon. How many dollars would you need in 2060 to buy what $2.00 would buy in 2016?

Answer 1

Answer:

The answer is: $20

Explanation:

To calculate how much money you will need in 2060 to buy an equivalent to $2 of today, we can use the current CPI and convert our money to base year dollars. Then we multiply our base year dollars by the CPI of 2060.

$2 / 2.4 CPI 2019 = $0.8333 base dollars

$0.8333 base dollars x 24 CPI 2060 = $20

This means that you will need $20 in 2060 to buy the same amount of goods that you bought with $2 in 2019.