This problem shows how economists measure changes in prices and income. It uses

Question

This problem shows how economists measure changes in prices and income. It uses a simple example with just two goods to illustrate the concepts of a basket of goods, a price index, inflation, nominal income, and real income.

Last year, Maria's income was $1,800. Milk cost $1 per gallon. Bread, which is very expensive where Maria lives, cost $3 per loaf. This year, her income is $3,600. The price of milk increased to $2 per gallon, and the price of bread increased to $9 per loaf.

1) This year, what is the price of a goods basket with 6 gallons of milk and 4 loaves of bread? (Because you will need this answer for a subsequent problem, you should make a note of this amount.)
$_________

2)How much did this basket with 6 gallons of milk and 4 loaves of bread cost last year? (Because you will need this answer for a subsequent problem, you should make a note of this amount.)
$_________

Explanation / Answer

please rate! 1) 6 gallons of milk + 4 loaves of bread 6*1+4*3 total cost = 18 2) 6*2+4*9 12+36 total cost 48

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