The next 5 questions refer to problem 7 in Chapter 6 (7i edition) or Chapter 5 (

Question

The next 5 questions refer to problem 7 in Chapter 6 (7i edition) or Chapter 5 (6h/5th editions) Pa 21. What is the CPI inflation ratc from 1978 to 1979? 3.34% 5.58% 6.52% 7.10% 7.26% 3.90%] 1.35% 23.05% 23.80%, 29.95% 35.90% 43.31% 22. By what percentage did the price of gasoline rise from 1978 to 1979? 3.34% 5.58% 6.52% 7.10% 7.26%-8.90% 11.35% 23.05% 23.80% 29.95% 35.90% 43.31% 23. What is the CPI inflation rate from 1985 to 1985? 3.34% 5.58% h.52% 7.10% 7.26% 8.90% 11.35% 23.05% 23.80% 29.95% 35.90% 43.31% 21. By what percentage did the price of gasoline fall from 1985 to 1986? 3.34% 5.58% 6.52% 7.10% 7.26% 8.90% 11.35% 23.05% 23.80% 29.95% 35.90% 43.31% 25. Were most of the changes in gas prices due to general inflation or other causes? Inflation was the main cause of gas price changes Gas prices changed mostly for other reasons ficial "cost-ol-eating" index? following table lists the actual per-gallon prices for unleaded regular gaso- ne for June of each year between 1978 and 1986, together with the values of the CPIs for those years. For each year from 1979 to 1986, find the CPI infla- tion rate and the change in the relative (real) price of gasoline, both from the previous year. Would it be fair to say that most of the changes in gas prices during this period were due to general inflation, or were factors specific to the oil market playing a role as well? (LO1, LO4) FLATION AND THE PRIC CPI (1982-1984 1.00 Gasoline price (S/gallon) 0.663 0.901 1.269 1.39 1309 1.277 1.229 1.241 0.955 0.652 0.726 0.824 0.909 0.965 0.996 1.039 1.076 1.136 Year 1978 1979 980 198 1982 1983 984 1985 986

Explanation / Answer

(21)

Inflation rate = % Change in CPI = (0.726 / 0.652) - 1 = 1.1135 - 1 = 0.1135 = 11.35%

(22)

% Increase in gasoline price = (0.901 / 0.663) - 1 = 1.3590 - 1 = 0.3590 = 35.90%

(23)

Inflation rate = % Change in CPI = (1.136 / 1.076) - 1 = 1.0558 - 1 = 0.0558 = 5.58%

(24)

% decrease in gasoline price = (0.955 / 1.241) - 1 = 0.7695 - 1 = -0.2305 = -23.05%

(25) Gas prices changed mostly for other causes (Since during 1985-86, despite inflation rate being positive, gas prices decreased).

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