Converting Current to Constant

A. GDP is calculated using current market prices—meaning that GDP will rise over time with rising prices (inflation), even if output is not rising. Thus, how do we know if and how much the economy might be growing?

Real GDP = Nominal GDP / Price Index x 100

Is this economy growing?

Year GDP Price Index Real GDP

001 5215.3 100.0 _________

002 5293.9 103.2 _________

003 5381.8 108.8 _________

004 5506.3 114.0 _________

005 5666.3 122.6 _________

The best year for this economy was # _______

The worst year for this economy was # _______

B. Upon reaching the ripe old age of 70, looking back over your long and ??successful?? career in business, you recall your first real job, which you accepted in 2003 (just having completed your degree at A&M – Commerce and a year of “finding yourself”), that paid you a whopping $29,900. A few years later (2009) you were making $35,960. In 2020 you earned $48,900. By 2030 you were knocking down $66,850, and in 2045 (the year that you retired/they fired you), you earned $80,000.

In terms of real earnings, what was your best year? Your worst year? Notes: Big Brother (a.k.a. the IRS), in order to be fair and kind to all, simply took one half of your income each and every year. Also, when you checked with the U.S. Department of Labor, you found that the CPI moved as follows: 2020 = 100; 2003 = 69.1; 2009 = 82.9; 2030 = 138.2; and 2045 = 173.4