Question

The following six questions use data from the following tables. Thus, you'll need to select what you need for each calculation. Assume that the only items produced in this economy are houses and hair cuts and that 2018 is the base year for GDP. Be sure to show your calculations. Year Average House Price Average Hair Cut Hair Cuts (millions) Fee Houses Produced (millions) 1.00 1.02 2018 2019 $250,000 $258,000 1,000 1,010 $35.00 $35.10 gas Nominal interest rate on a car loan 5% Nominal price of a gallon of CPI Market Year Basket 1989 $2.00 150 $24,000 1999 $2.10 165 $26,400 2009 $2.25 175 $28,000 2018 $2.50 255 $40,800 2019 $2.55 • 265 $42,400 3%

1.What would would the price of gas from 1989 be when you put it in 2019 values?

Answer 1

1. The CPI measures the price change from year to year. For years 1989 and 2019, the CPI values are 150 and 265. This basically means that, the prices in 1989 are
150 265 0.566
times the prices in 2019. Hence, as the price of gallon of gas in 2019 is $2.55, we may say that the price of a gallon of gas in 1989 in terms of 2019 values would be
0.566* 2.55 = 1.4433 1.44
dollars.