The CPI (using a 2000 base year) for 1965 is 11.0. Suppose a household's annual take-home pay in 1965 was R14363. What would be an equivalent home pay in 2000?

Answer 1

To find the equivalent take-home pay in 2000 based on the CPI from 1965, you can use the formula for inflation adjustment:

\[ \text{Equivalent Pay} = \text{Nominal Pay} \times \frac{\text{CPI in 2000}}{\text{CPI in 1965}} \]

Given that the CPI for 1965 is 11.0 and the CPI for 2000 (using a base year of 2000) is 100.0, and the household's annual take-home pay in 1965 is R14363, you can substitute these values into the formula:

\[ \text{Equivalent Pay} = 14363 \times \frac{100}{11.0} \]

Now calculate it step by step.

1. First, calculate the fraction:

\[ \frac{100}{11.0} \approx 9.0909 \]

2. Now, multiply this by the nominal pay:

\[ \text{Equivalent Pay} \approx 14363 \times 9.0909 \approx 130,000.00 \]

So, the equivalent take-home pay in 2000 would be approximately R130,000.00.