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CHAPTER 14 SOLUTIONS AND MINI-PROJECT NOTES CHAPTER 14 READING THE ECONOMIC NEWS EXERCISE SOLUTIONS 14.1 Cost of stamp in 2002 = Cost of stamp in 1970 × (CPI in 2002/CPI in 1970) = 0.08 × (172.2/38.8) = 0.08 (4.438) = 0.355, or between 35 and 36 cents. 14.2 a. To compute this for the first decade, use (24.1-14.0)/14.0 = 72% increase from 1940 to 1950. Thus, the increases were: 1940-50 1950-60 1960-70 1970-80 1980-90 1990-2000 72.0% 22.8% 31.1% 112.4% 58.6% 31.8% b. Inflation was by far highest during the 1970s. c. Inflation was lowest during the 1950s. 14.3 For 1981 the index is 100 × (3.50/1.50) = 233.33. For 1995 the index is 100 × (6.99/1.50) = 466. In 1981 a paperback book cost 233.33% of what it cost in 1968, and by 1995 the same book cost 466% of what it cost in 1968. You could also say that in 1981 it cost about 2 1/3 times as much and in 1995 it cost almost 5 times as much as in 1968. 14.4 The weights are based on the proportional expenditures people made in each category in the base period. People spent much more on food and beverages than they did on recreation. 14.5 Your answer should incorporate items one to four in the box on page 272 in the text. 14.6 a. To find the "Medical Care Index" for each year, simply divide the cost for that year by the 1987 cost: (Note that the values given are total expenditures for the country, and not per person costs. Technically, the per person costs should be used, but the index would not be much different.) b. The medical care index almost doubled while the Consumer Price Index increased by only 27% (144.5/113.6 = 1.27). In other words, the cost of medical care between 1987 and 1993 increased far more than the rate of inflation, as measured by the Consumer Price Index. 14.7
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This note was uploaded on 04/13/2008 for the course STAT 100 taught by Professor Seifriedthomasj during the Spring '08 term at Penn State.

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