Your income in 2004 was $67,000 and your income in 2020 was $95,000. The price index in 2004 was 110.8, and in 2020 it was 130. Convert your 2004 income in 2020's dollars. Round your answer to the nearest dollar. Answer: Your 2004 income in 2020's dollars is $

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Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.