03 Question You might have heard your grandmother say, “When I was your age, can

Question

03 Question

You might have heard your grandmother say, “When I was your age, candy bars cost a nickel.” Like candy bars, the price of fast food has increased over time. In 1958, the year Pizza Hut introduced its large cheese pizza, the price was $1.50. In 2015, a large cheese pizza cost $10.49.

Suppose the CPI in 1958 was 29, and the CPI in 2015 was 240. The base year for the CPI is 1983.

Part 1

In real terms, a large cheese pizza was more expensive in (1958 or 2015)

Part 2  

? Ch.21,Te: Price Level and Inflation: Homework 10/27/17 69% Lhce edu This is a Mixed question/it is worth 1 point/You hawa 2 of 2 attempts remairire/There is no attempt penalty n See page 6/3 03 Question (1 point) You mighl have erd your grandrmolhvei say."Whien I was your agecy bars cusl a nickel:Like cy bers, e price uf fas oudhas ineedover time. In 1953, the year Pizza Hutintroduced its large cheese pizza, the price was $1.50. In 2015,a large cheese pizza costed $10.19. Suppose the CPI In 1958 was 29, and the CPI In 201s was 240. I he base Year tor the Cpis 1983. 1st attempt Part 1 (0.5 point) See Hint Inreal terms, alargecheese pizza was more expensive in Part 2 (0.5 point) 0 Ser Hint If the price of a large che ad koept up with the rate of ifaats pricze in 2015 beeri S 03n6>

Explanation / Answer

a) CPI in 1958 = 29

in 2015 = 240 and 1983 = 100 as base year

So, According to CPIs the price in 2015 should have been = 1.5 * 240/29 = 12.43

But it is 10.49, so it was more expensive in 1958.

b) inflation = (240 - 29) * 100/29 = 727.59%

So, price should have been = 1.5 * (1 + 727.59/100) = 12.41

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