In Table 2, you can see that the CPI rose from 174.0 in December 2000 to 219.2 in December 2010. The average annual inflation rate from 2000 to 2010 was 2.34 percent. That is, 174.0 × (1.0234)10 = 219.2.
Suppose that this average annual rate of inflation overstates the actual annual inflation rate by one percentage point each year, starting in December 2000.
a. What would be the value of an accurate CPI in December 2010?
b. What would be an accurate value for real weekly earnings (excluding benefits) in December 2010? (Use information in Table 2.)

c. Determine the total percentage change in real weekly earnings (excluding benefits) from December 2000 to December 2010 using your answer in (b).

Table 2

Table 3

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Real Weekly Earnings (1983 dollars) Nominal Weekly Earnings Year CPI 1980 $269 86.3 $312 $348 1985 109.3 $318 1990 $417 133.8 $312 $482 153.5 1995 $314 2000 $581 174.0 $334 2005 $658 196.8 $334 $343 2010 $751 219.2 Benefits Indexed to Accurate Benefits Indexed to CPI (rising at 2%) Overstated CPI (rising at 3%) (2) Nominal (3) Real Annual (4) Nominal (5) Real Annual (1) Accurate Benefit, [(2) ÷ (1)] × 100 Annual Benefit Annual Benefit Benefit, Price Index (indexed at Year (2006 = 100) 2% per year) 2006 (indexed at 3% per year) $25,000 [(4) ÷ (1)] x 00 $25,000 100.00 $25,000 $25,000 2007 102.00 $25,500 $25,000 $25,750 $25,245 $25,493 $25,742 2008 104.04 $26,010 $26,532 $25,000 $25,000 $26,523 $27,318 2009 106.12 ... 2026 148.59 $37,149 $25,000 $45,153 $30,388