DJ Money Face is the world's best DJ. In 2017, he earned $20,000 playing the most popular music at nightclubs. He spent many nights practicing, twisting knobs and holding one earphone of the headphones to his ear. Audiences were so thrilled by his iTunes playlist that in 2018, he was able to earn $25,000 selecting the most popular music. Use the following information regarding CPI to answer these questions. So we're going to go through this together. We're going to calculate DJ Money Face's real income in 2017, and we'll take a pause. I want you guys to try and calculate the 2018 income and also use the percentage change formula to calculate the percentage change in his real income. Alright? So let's go ahead. We're going to start here together, and then you guys can try the other ones. So let's start with A, his 2017 real income.

Remember, when we're calculating real income, we just want to take the nominal, and we're going to divide it by the price index, the CPI, and we're going to do it in 100, right, as a decimal. So let's go ahead and do this here. What was his nominal income in 2017? We have it right up here; in 2017, he earned $20,000. So the numerator here is going to be 20,000, and we'll divide it by the CPI in what year? We're going to use the CPI from 2017, right? In 2017, the CPI was 118, so we got to convert that to a decimal. So 118, that's like 118% of the base year prices, so it's gone up by 18%. So we're going to convert it to 1.18. We moved the decimal over two times, and now we've got a decimal instead of a percent. So we're going to divide by 1.18 here, and we'll do the equal sign right down here. So in 2017, what is his real income? So let's see what that is. Come on, calculator. Don't fail me now. Alright, $20,000 divided by 1.18 gives us a real income of $16,949.15, okay? $16,949.15, that is his real income in 2017.

So, what does that mean? What does it mean that that's his real income? That means if we compared it to the base year in 2005, notice 2005 is our base year here. They didn't tell us, but we can gauge that it's the base year because it's around 2005. So the price level was, what we're saying is that if this money was earned in 2005, it was worth $16,949.15. So, what he earned, the $20,000, this is a better explanation, the $20,000 that he earned in 2017 would have been the equivalent of earning $16,949 in 2005, okay? So basically the same purchasing power, right? He's able to purchase the same amount of goods because inflation has taken place since 2005.

Alright. Let's take a pause here, and you guys try to solve the real income in 2018, and then we'll do another video for the final one, question C. Cool.