Question

On April 1, the price of gas at Bob's Corner Station was $3.35 per gallon. On May 1, the price was $3.85 per gallon. On June 1, it was back down to $3.35 per gallon. Between April 1 and May 1, Bob's price increased by or Between May 1 and June 1, Bob'ss 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 $3.85 than when gas costs $3.35 Some economists blame high commodity prices (including the price of gas) on interest rates being too low. Suppose the Fed raises the target for the federal funds rate from 2% to 2.25 %. This change of percentage points means that the Fed raised its target by approximately

Answer 1

Between April 1 and May 1, the prices have increased by 3.85-3.35 or $0.50 or 50 cents which is the same as 0.50/3.35*100= 14.9%

Between May 1 and June 1, the prices have decreased by 3.35-3.85 or $0.50 or 50 cents which is the same as 0.50/3.85*100= 12.98%

When Bob's price was 3.35, the other station price was= (1.2)*3.35= (1+20/100)*3.35=4.02

When Bob’s price was 3.85, the other station price was= (1.2)*3.85= 4.62

Thus the absolute difference between these prices would be= 4.62-4.02= 60 cents or $0.60

When the target rate was increased from 2% to 2.25% which is a change of 25 percentage points means that the target was increased by approximately (2.25-2)/2*100= 12.5%