The United States Census Bureau, Statistical Abstract of the United States 1999 (p. 877) contains a table listing median family income for each year from 1947 to 1997. The incomes are presented “in current dollars” and “in constant (1997) dollars.” As an example, the median income in 1985 in “current dollars” was $ 27,735 and in “constant (1997) dollars” it was $ 41,371. The CPI in 1985 was 107.6 and in 1997, it was 160.5.
a. Using these figures for 1985 as an illustration, explain what is meant by “in constant (1997) dollars.”
b. The median family income in 1997 was $ 44,568. After adjusting for inflation, compare the 1985 and 1997 median incomes. Report the percent increase or decrease from 1985 to 1997.
c. Name one advantage to reporting the incomes in “current dollars” and one advantage to reporting the incomes in “constant dollars.”