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Simple English definitions for legal terms
constant dollars
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A quick definition of constant dollars:
Constant dollars refer to the value of money at a specific time, adjusted for inflation. In simpler terms, it means how much money is worth today compared to how much it was worth in the past. This is determined by the consumer price index, which measures changes in the cost of goods and services over time. Constant dollars are used as a way to measure inflation and understand how the value of money changes over time.
A more thorough explanation:
Definition: Constant dollars refer to the value of current money expressed as a percentage of its buying power in a previous year, as determined by the consumer price index. This value is used as a measure of inflation.
Example: Let's say you earned $50,000 in 2010 and $60,000 in 2020. At first glance, it seems like you earned $10,000 more in 2020. However, if we adjust for inflation using the consumer price index, we may find that the buying power of $50,000 in 2010 is equivalent to $60,000 in 2020. In this case, your earnings in 2020 are not actually higher than in 2010 when we consider the value of money over time.
Explanation: The example illustrates how constant dollars are used to adjust for inflation and compare the value of money over time. By using the consumer price index, we can determine the buying power of money in a previous year and compare it to the buying power of money in a current year. This allows us to make more accurate comparisons of earnings, prices, and other economic indicators over time.