II. Short Answer: 1.The table below lists the per gallon prices of gas and milk
ID: 3196390 • Letter: I
Question
II. Short Answer: 1.The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. Answer the below questions based on this information. Show your work for full credit. (6 points) Month Price of Gas S2.00 S3.50 S3.85 ice of Milk 3.50 May June 3.58 A. Compute the CPl in 2015. B. What was the CPI inflation rate from 2015-2016? C. During the year from 2015-2016, the nominal interest rate was 6 percent. Based on your previous answer, what was the real interest rate?Explanation / Answer
A) &B)::Note that although you can calculate all CPI values, the inflation rate can only be calculated for certain months. .Computation is easier if we first compute that price of the base month basket at current prices.
Since the CPI =price of the base month basket at current prices /the price of the base month basket at
base month prices, we divide each number in the final column by $ 134 to arrive at the CPI.
Also CPI Inflation Rate =(CPI in present month-CPI in previous month)*100/CPI in previous month
C)Real Interest Rate = Nominal Interest Rate -Inflation Rate
Month Price of gas(Px) quantity of gas(Qx) Price of milk(Py) Quantity of milk(Qy) prices of base month basket at current prices APRIL $2 60 $ 3.50 4 2*60 +3.50*4=134 MAY $3.5 60 $ 3.25 4 3.5*60 + 3.25*4=223 JUNE $3.85 60 $ 3.58 4 3.85*60 +3.58*4=245.32