What does “constant dollars” mean?

Constant dollars is a term used to measure the value of the dollar connecting in terms of value in the previous moment. This metric is useful in measuring factoring of the dollar value in inflation or deflation that may occur over time. Constant dollars require a calculation that uses consumer price or CPI index, the values ​​of the current year and the year in the past that the current value is measured against. There are many useful measurement applications that increase prices, wages and earnings to a historical perspective. The comparison of what is now costing with what it costs in the past is somewhat worthless as exercise without any way to connect these costs with the dollar value at both time points. Using the concept of constant dollars, it solves this puzzle because it takes into account the effect of inflation or deflation on the dollar values.

the evaluation of the dollar value in time with pIt equals in accordance with the Consumer Price Index (CPI), an index that reflects the cost of living in the US at the time it is calculated. To calculate the constant dollars to the amount of current dollars compared to the previous year, the current CPI CPI is divided by the current CPI. This number is then multiplied by the current total dollar.

For a simple example, imagine that the current consumer price index is 125 and the CPI is 75 two years ago and that the amount of the current dollars is $ 1,000 USD (USD). CPI 75 is divided by 125, which provides a total of 0.60. This total of 0.60 is then multiplied by $ 1,000, leaving the product $ 600. This means that 6 $ 00 USD two years ago would be worth up to $ 1,000. 6 This means that the CPI in the current year is divided by the CPI of the previous year, which is multiplied by the amount of dollars of the previous year. Constant dollars allow each one to measure the value of a certain amount of money. It can be useful for businesses that measure their profits, for the US government studying amounts DLuhu, or even for individuals who are trying to find out whether their wages are properly tuned to inflation amounts.