Math RWLO Template Title Placeholder



A Dollar’s Worth

Project Overview

Have you ever reflected back to a previous time in your life when a dollar could purchase more than it can today? Have you ever wondered about what inflation is and how it’s calculated? In this RWLO, students will be introduced to the Consumer Price Index (CPI) and will use it to compare the worth of a dollar during various years. Students will also use the CPI to calculate the inflation rate.

This RWLO can be used in a Pre-Algebra or Basic Mathematics course after students have learned about ratios and proportions.

Student Learning Objectives

For this RWLO, the student will be able to:

• Use a ratio of CPI’s to determine a dollar’s worth.

• Solve proportions using CPI’s.

• Find the inflation rate using CPI’s.

Procedure

Time: Approximately 30 minutes

Materials: Pencil, paper, scientific calculator, computer with internet access.

Prerequisites: A basic understanding of ratios, proportions and how to find percent increase/decrease.

Implementation: This RWLO is recommended as a project to be done outside of class as homework, with an in-class introduction to the project. However, this project could be done entirely as an in-class project. Students are encouraged to work together but still do their own calculations.

Steps:

1. Discuss consumer price index, inflation, and the relationship between the

two.

2. Cover how to read and what to look for in the consumer price index table.

Table Containing History of CPI-U U.S. All Items Indexes and Annual

Percent Changes From 1913 to Present or Historical CPI.

3. Distribute copies and review the Dollar’s Worth worksheet.

Content Material

Background: The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. For the current CPI, this information was collected from the Consumer Expenditure Survey over the two years 2001 and 2002. In each of those years, about 10,000 families from around the country provided information on their spending habits in a series of quarterly interviews. To collect information on frequently purchased items such as food and personal care products, another 7,500 families in each of the 2 years kept diaries listing everything they bought during a 2-week period. Altogether, more than 30,000 individuals and families provided expenditure information for use in determining the importance, or weight, of the more than 200 categories in the CPI index structure.

A  simple definition of the word inflation is simply "an increase in the price you pay or a decline in the purchasing power of money". In other words, Price Inflation is when prices get higher or it takes more money to buy the same item. Inflation is measured by the Bureau of Labor Statistics in the United States using the Consumer Price Index.

The CPI is the most widely used measure of inflation and is sometimes viewed as an indicator of the effectiveness of government economic policy. It provides information about price changes in the nation's economy to government, business, labor, and other private citizens, and is used by them as a guide to making economic decisions. In addition, the President, Congress, and the Federal Reserve Board use trends in the CPI to aid in formulating fiscal and monetary policies.

Student Directions: CPI values can be found using the Table Containing History of CPI-U U.S. All Items Indexes and Annual Percent Changes From 1913 to Present or Historical CPI. Unless instructed otherwise, use the average CPI for the chosen year. You can confirm your results from problems 1-5 using the Inflation Calculator .

1. Choose any year between 1913 and the present year. Find the CPI values for

the chosen year and the most recent month recorded in the table. Calculate

how much a dollar from the chosen year would be worth today using the ratio

below.

[pic]

2. Find the CPI values for your birth year and the most recent month recorded in

the table. Calculate how much today’s dollar would be worth in your birth year

using the ratio below.

[pic]

3. What year’s dollar would have about ten times more purchasing power today?

Use the proportion below to answer questions 4 and 5.

[pic]

4. Let’s say you have $7 in your pocket to purchase some goods and services

today. Calculate much money you would have needed in 1950 to buy the

same amount of goods and services?

5. Let’s say your parents told you that in 1950 a movie cost 25 cents. How could

you tell if movies have increased in price faster or slower than most goods

and services?

6. The inflation rate can be calculated by determining the percent increase or

decrease in the CPI. Calculate the current inflation rate using the CPI of the

latest month in the table and the CPI of the same month from the previous

year.

You can confirm your results at

Assessment

The following is a recommended form of assessment. Allow the students one week to complete this project and then collect the CPI and Inflation worksheet. Require the students to show their calculations. Suggested point values are in red. ( A total of 100 points)

1. Choose any year between 1913 and the present year. Find the CPI values for

the chosen year and the most recent month recorded in the table. Calculate

how much a dollar from the chosen year would be worth today using the ratio

below. (15 points)

[pic]

2. Find the CPI values for your birth year and the most recent month recorded in

the table. Calculate how much today’s dollar would be worth in your birth year

using the ratio below. (15 points)

[pic]

3. What year’s dollar would have about ten times more purchasing power today?

(20 points)

Use the proportion below to answer questions 4 and 5.

[pic]

4. Let’s say you have $7 in your pocket to purchase some goods and services

today. Calculate much money you would have needed in 1950 to buy the

same amount of goods and services? (15 points)

5. Let’s say your parents told you that in 1950 a movie cost 25 cents. How could

you tell if movies have increased in price faster or slower than most goods

and services? (15 points)

6. The inflation rate can be calculated by determining the percent increase or

decrease in the CPI. Calculate the current inflation rate using the CPI of the

latest month in the table and the CPI of the same month from the previous

year. (20 points)

Links to Course Competencies

This RWLO would be appropriate for a Basic Mathematics or Pre-Algebra class. The following course competencies are satisfied by this RWLO:

• Read data from a table.

• Use the internet to collect data and verify results.

• Write ratios as fractions.

• Solve problems using proportions.

• Solve percent problems using proportions

Supplementary Resources

• U.S. Department of Labor Bureau of Labor Statistics

• Federal Reserve Bank of Minneapolis

•

• Suburban Library System Web site

• American Institute for Economic Research

Recommendations

Recommendations for Integration: This RWLO is suggested to be incorporated into a group setting where 2-3 students work collaboratively. Students/groups should be encouraged to work together in verifying their calculations match the calculations posted online. Consumer price index as well as inflation are strongly encouraged to be discussed in class.

Back-up: The CPI table for the month could be printed prior to coming to class. All of the sites, with the exception of the library system one, have calculators that students could use to verify their results.

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