eco405answer1

eco405answer1 - Eco 405 Assignment 1 (Due Jan. 28, 2008,...

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1 Eco 405 Assignment 1 (Due Jan. 28, 2008, Monday) 1. The following table shows the average retail price of butter and the Consumer Price Index from 1980 to 2001. ˇ 1980 1985 1990 1995 2000 2001 CPI 100 130.58 158.62 184.95 208.98 214.93 Retail Price of butter $1.88 $2.12 $1.99 $1.61 $2.52 $3.30 (salted, grade AA, per lb.) a. Calculate the real price of butter in 1980 dollars. Has the real price increased/decreased/stayed the same since 1980? Real price of butter in year X = CPI 1980 CPI year X * nominal price in year X . 1980 1985 1990 1995 2000 2001 $1.88 $1.62 $1.25 $0.87 $1.21 $1.54 Since 1980 the real price of butter has decreased. b. What is the percentage change in the real price (1980 dollars) from 1980 to 2001? Percentage change in real price from 1980 to 2001 = 1.54 - 1.88 1.88 = - 0.18 = - 18% . c. Convert the CPI into 1990 = 100 and determine the real price of butter in 1990 dollars. To convert the CPI into 1990=100, divide the CPI for each year by the CPI for 1990. Use the formula from part (a) and the new CPI numbers below to find the real price of milk. New CPI
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eco405answer1 - Eco 405 Assignment 1 (Due Jan. 28, 2008,...

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