Reference no: EM131650836

Babe Ruth was a famous baseball player in the 1920s. He made a salary of $80,000 in 1930, which was considered outrageous because it was more than President Hoover made ("I had a better year than he did" was Ruth's supposed response). Nowadays, baseball players make much more than $80,000; the average major league salary in 2017 is $4.47 million per year, and the highest salary is $33 million for Clayton Kershaw.

Some of the difference in salaries between Babe Ruth and today's players is due to inflation, and some of it is due to the fact that major league players make more in real terms today, because the market for baseball has grown over times and because players have gotten a higher share of the baseball pie over time because they have a powerful union.

How much of the difference is due to inflation? What is Babe Ruth's 1930 salary in today's dollars? Use the formula for converting between nominal and real given in class. There are various websites that show the Consumer Price Index for various years.