Question

On April 1, the price of gas at Bob's Corner Station was $3.40 per gallon. On May 1, the price was $3.90 per gallon. On June 1, it was back down to $3.40 per gallon. Between April 1 and May 1, Bob's price increased by Between May 1 and June 1, Bob's price decreased by or Suppose that at a gas station across the street, prices are always 20% higher than Bob's. In absolute dollar terms, the difference between Bob's prices and the prices across the street is when gas costs $3.90 than when gas costs $3.40. Some economists blame high commodity prices (including the price of gas) on interest rates being too low. percentage points means Suppose the Fed raises the target for the federal funds rate from 2% to 2.5%. This change of that the Fed raised its target by approximately

Answer 1

Price on April 1 = $3.40 per gallon

Price on May 1 = $3.90 per gallon

Increase in price = $3.90 - $3.40 = $0.50

Percentage increase in price = [($3.90 - $3.40)/$3.40] * 100 = 14.71%

Thus,

Between April 1 and May 1, Bob's price increased by $0.50, or 14.71%.

Price on May 1 = $3.90 per gallon

Price on April 1 = $3.40 per gallon

Decrease in price = $3.40 - $3.90 = -$0.50

Percentage decrease in price = [($3.40 - $3.90)/$3.90] * 100 = -12.82%

Thus,

Between May 1 and June 1, Bob's price decreased by $0.50, or 12.82%.

Price of gas station across the street is always 20% higher than the Bob's.

Price at gas station of Bob = $3.40 per gallon

Price of gas station across street = [$3.40 + ($3.40 * 0.20)] = $3.40 + $0.68 = $4.08

The price of gas station across street is $4.08 per gallon when the price at the gas station of Bob is $3.40 per gallon.

Price of gas station across the street is always 20% higher than the Bob's.

Price at gas station of Bob = $3.90 per gallon

Price of gas station across street = [$3.90 + ($3.90 * 0.20)] = $3.90 + $0.78 = $4.68

The price of gas station across street is $4.68 per gallon when the price at the gas station of Bob is $3.90 per gallon.

Difference = $4.68 - $4.08 = $0.60

Thus,

In absolute dollar terms, the difference between Bob's price and the prices across the street is $0.60 when gas costs $3.90 than when gas costs $3.40.

Fed raises the target for Federal Funds rate from 2% to 2.50%.

This means that rate has been increased by 0.5%.

Percentage increase = [(New rate - Old rate)/Old rate] * 100 = [(2.5 - 2)/2] * 100 = 25%

Thus,

This change of 0.5 percentage points means that the Fed raises its target by approximately 25%.