00:01
So here we're given some information about inflation or sorry, i should say prices and income, right? so there are two parts here.
00:08
A nominal income has clearly increased, right? we know that nominal income increased because these are nominal income, right? nominal income is measured in current dollars, right? and these are measured in current dollars.
00:28
It's $28 ,1982 and $60 ,000 to $2015, right? these are our nominal values.
00:36
The more interesting part is real income.
00:39
Real income is measuring purchasing power.
00:44
So i need to adjust for prices.
00:48
I need to put in common dollars.
00:52
And to do this, let's pay careful attention to the units.
00:56
So in 2015, i am making 60 ,000 times in 2015, but i want to change this to $1982.
01:14
So what i need to do is to divide by the price level in 2015, just to switch units almost.
01:28
That's how i tend to think of this, to switch units.
01:31
If i think of the cpi as the price to buy a basket of stuff, right? i can sort of think of this as dividing by $238, $2015 divided it per stuff, right? we're just buying things.
01:52
And that gets me to cancel out the units of $2015...