39)Suppose in 1981 the price of gasoline was $1.50 and the CPI was 90. Suppose in...

39)Suppose in 1981 the price of gasoline was $1.50 and the CPI was 90. Suppose in 2017, the CPI is 244.5. If the price of gasoline increased at the same rate as the CPI what would its price be in 2017? Choose your closest answer.

Select one:

a. 164.93 cents per gallon (or $1.6493)

b. 407.50 cents per gallon (or $4.0750)

c. 695.38 cents per gallon (or $6.9538)

d. 401.5 cents per gallon (or $4.015)

e. 397.50 cents per gallon (or $3.9750)

Solutions

Expert Solution

Ans: 407.50 cents per gallon (or $4.0750)

Explanation:

Percentage increase in CPI in 2017 = [(244.5 - 90) / 90] * 100 = 171.67%

The price of gasoline in 2017 = 1.50 + (1.50 * 171.67%)

= 1.50 + (1.50 * 1.7167)

= 1.50 + 2.5750

= $4.0750 or 407.50 cents per gallon

Thus, option [b] is correct answer.

Rahul Sunny answered 1 year ago

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