Question

"The salary of the president of the United States in 2000 was $400,000. In 1940, the president's salary was $75,000. If the Consumer Price Index was 8.1 in 1940 and 100 in 2000, the 1940 presidential salary measured in terms of the purchasing power of the dollar in 2000 would be:"

Answer 1

Answer:

$925,925.93.

Explanation:

to calculate the purchasing power of Franklin Roosevelt's salary in 1940, we have to divide 100 by 8.1 = 12.3457 and then multiply that number by $75,000 = $925,925.93.

This means that in real dollars adjusted to inflation, FDR earned more than twice as much as Bill Clinton earned in 2000.

The CPI is used to measure inflation, and as inflation rises, the purchasing power of the dollar decreases, i.e. in 2000, you needed $12.35 to buy the same amount of goods that could be purchased with $1 in 1940.