To
accurately
compare
numbers
from
different
time
periods
, you must
recompute
them as if
they
occurred
in the
same time
period
.

This
may be
easier
said than
done.
However,
it is
possible
in many
cases.

Here
are two
common
examples:
(1) The
interest
rates
charged
(or paid)
by banks
can be
computed
on an
annual
basis, no
matter how
the banks
calculate
compounding.
(2)The
purchasing
power of
money can
be
estimated
in
different
time
periods
using the
consumer
price
index.

Example
:
Which has
the
greatest
purchasing
power
:
$100 in
the year
1965
, or
$500 in
the year
2008
?

In the
United
States, $1
in 1965
has the
same
purchasing
power as
$6.74 in
2008
(Bureau of
Labor
Statistics:
http://www.bls.gov/data/inflation_calculator.htm
)
.

*To
calculate
what the
equivalent
purchasing
power of
$100 in
1965 would
be in
2008*
:

($100)(6.74)
=
$674

*Both
numbers
can now be
compared
in terms
of 2008
purchasing
power*
:

$100 in
1965 =
$674 in
2008

$500 in
2008 =
$74.18 in
1965

The
comparison
shown
above
demonstrates
that the
purchasing
power
of
$500 in
2008
is
less
than
the
purchasing
power
of
$100 in
1965.

$500 in
2008
*
<
*
$100 in
1965

Or, stated
another
way, the
comparison
shown
above
demonstrates
that the
purchasing
power
of
$100 in
1965
is
greater
than
the
purchasing
power
of
$500 in
2008.

$100 in
1965
>
$500 in
2008