Activity 8.2

Use the CPI values in Example 8.2 to convert the 1974 postage rate into constant 1971 dollars.

According to Example 8.2 (Sevilla and Somers, 2007), the equation for calculating constant dollars using CPI values is: Dollars at Time O = Dollars at Time A * (CPI at Time O/CPI at Time A). The 1974 postage rate is $0.10, the 1971 CPI is 40.5 and the 1974 CPI is 49.3. Using these values, the equation for translating the 1974 postage rate to constant 1971 dollars is: 1971 dollars = 0.10 * (40.5/49.3). The result is $0.082.

Repeat for the other dates in the table from 1971 to 2002. Describe what these values show about postage rates over the years 1971 to 2002.

Using the data from Example 8.2 and Assignment 8.2, the following calculations can be made to convert postage rates from 1971 to 2002 into constant 1971 dollars:

1971 postage in constant 1971 dollars = .08

1974 postage in constant 1971 dollars = .10 * 40.5/49.3

1974 postage in constant 1971 dollars = .08215

1978 postage in constant 1971 dollars = .15 * 40.5/65.2

1978 postage in constant 1971 dollars = .09317

1981 postage in constant 1971 dollars = .18 * 40.5/90.9

1981 postage in constant 1971 dollars = .0802

1983 postage in constant 1971 dollars = .22 * 40.5/99.6

1983 postage in constant 1971 dollars = .08895

1988 postage in constant 1971 dollars = .25 * 40.5/118.3

1988 postage in constant 1971 dollars = .08559

1991 postage in constant 1971 dollars = .29 * 40.5/136.2

1991 postage in constant 1971 dollars = .08623

1995 postage in constant 1971 dollars = .32 * 40.5/152.4

1995 postage in constant 1971 dollars = .08504

1999 postage in constant 1971 dollars = .33 * 40.5/166.6

1999 postage in constant 1971 dollars = .08022

2001 postage in constant 1971 dollars = .34 * 40.5/177.1

2001 postage in constant 1971 dollars = .07775

2002 postage in constant 1971 dollars = .37 * 40.5/179.9

2002 postage in constant 1971 dollars = .0833

Analysis

The chart shown in Figure 1...