Calculating Real Prices
Explore: How can we take into account the purchasing power of the dollar when comparing values between years?

Because some data such as sales, expenditures, and output are reported in terms of dollars, their values will be affected by inflation. So, comparing sales volume for automobiles in 1960 and 2005, therefore will reflect changes in both quantity sold and the average price of cars. If we want to know how the real sales, expenditures, and output have changed, that is, the quantity of product sold, purchased, or produced, we need to calculate sales at the same dollar values--either 1960 or 2005 dollars. To do this we have to convert nominal values into real values. We do so by deflating the nominal values with a price index such as the CPI. We can also deflate prices of specific goods to see how these prices change relative to all other prices.

This interactive graph calculates the real values associated with nominal values for any two years between 1913 and 2004. 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 July 1, 2005). The CPI in 1939 was 13.9 and 160.5 in 1997. In real terms, which movie has earned the highest U.S. gross ticket sales?
   Source: http://movieweb.com/movie/alltime.html
   See answer here
2. How much would a movie needed to have earned in gross ticket sales in 2004 to match the real value of gross ticket sales of Gone with the Wind?
   See answer here
3. We can also express prices of specific goods in real terms so that we can compare gas prices of $1.77 in 2003 with gas prices of $1.39 in 1981. Adjusted for the changing purchasing power of the dollar, which is higher? To find out we have to find the real price of gas in the same base year, in this case 1982-84, the base year of the CPI. So to covert both prices to 1982-84 dollars, divide the price by the CPI in each year. Use the exercise to do the calculation. In real terms, was gasoline cheaper in 2003 or 1981?
   Data source: American Petroleum Institute
   See answer here
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?
   See answer here
5. A worker is earning $40,000 in 2003 and receives a 5% raise in 2004. After taking inflation into account, will the worker, on average, be able to afford to buy more goods? What if the raise had been 2%?
   See answer here