Using the CPI to Adjust Nominal Values for Inflation

The CPI can be used to adjust nominal economic data to eliminate the effects of inflation. By deflating nominal values using the CPI, nominal quantities can be expressed in terms of real purchasing power, while indexing nominal values using the CPI allows nominal values to be adjusted to maintain real purchasing power.

Exploration: How can the CPI be used to adjust nominal values for inflation?

The applet above calculates the real values associated with nominal values for any two years between 1913 and 2003. To use the table, use the mouse to click on any of the boldfaced numbers in the Year or Nominal Price columns and enter a new year and/or nominal value in the highlighted gray area; click the Reset button to restore the original values.

1. The movie "Gone with the Wind" had U.S. gross ticket sales of $199 million in 1939, when it was released, and is ranked 47th in the all-time highest grossing movies list, while the movie "Titanic" had U.S. gross ticket sales of $601 million during its release year, 1997, and is ranked number one on this list (as of June 1, 2003). The CPI in 1939 was 0.139 and 1.61 in 1997. In real terms, which movie has earned the highest U.S. gross ticket sales?
   
   Source: http://movieweb.com/movie/alltime.html
   
   
2. How much would a movie needed to have earned in gross ticket sales in spring, 2003 to match the real value of gross ticket sales of Gone with the Wind?
   
   
3. During the war on Iraq in the spring of 2003, gasoline prices rose dramatically, reaching a price of $1.77 a gallon in mid-March, 2003. In 1981 the average price for a gallon of gasoline was $1.39. The CPI in March, 2003 was 1.839 and the CPI in 1981 was 0.909. In real terms, was gasoline cheaper in 2003 or 1981?
   
   
4. If the price of a gallon of gasoline increased at the rate of inflation between 1981 and 2003, how much would a gallon of gasoline have cost in the spring of 2003?
   
   
5. A worker is earning $40,000 in 2001 and receives a 5% raise in 2002. In real terms, is this worker better off in 2002? What if the raise had been 1%?

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Exercise picked up from the 2e Macroeconomics textbook.