Question

1) What is inflation?

2) What is deflation?

3) What is the Consumer Price Index?

Use the following table to solve questions 4-7: https://inflationdata.com/Inflation/Consumer_Price_Index/HistoricalCPI.aspx?reloaded=true#Table (Links to an external site.)

4) Michael went to AMC theaters and paid $12.00 for a movie ticket. However, he wants to know what the price of a movie ticket would be in 1990?

5) Joanne is pumping gasoline at ExxonMobil and saw that the price is $3.39 per gallon. She is curious to see if she is overpaying or underpaying today. Gasoline prices in the 1980s were $1.03 per gallon. How much should a gallon of gasoline be today?

6) Jerry works at Jamba Juice and gets paid California state minimum wage. However, in the 1970s, the minimum wage was $1.60 per hour. Is Jerry better or worse off today compared to the California state minimum wage? How about compared to the federal minimum wage of $7.25?

7) Barbara is a Toyota fan and remembers in 2000 the price of a Camry was priced $26,198. She is wondering if the price of a Camry is about the same based on inflation? What should the price of a new Toyota Camry be today?

I need numbers 5,6 and 7.

Answer 1

Q1. Inflation is the sustained increase in the general price level of goods and services in an economy during a specified period of time. When inflation rises, each unit of currency buys fewer goods and services over a period of time. Money performs the function of store of value. This value gets eroded gradually over a period of time and results in fall in the purchasing power of the currency.

Q2. Deflation means decrease in the price level of goods and services in an economy over a specified period of time. Critics are mostly against deflation, but it can be good or bad. It can be good if price of the raw material is so high that it result in rise in cost for the whole economy, thus lower prices may benefit the economy.

It can be bad if the economy need a healthy level of inflation to grow but the prices are continue to fall due to plunge in confidence level of economic agents in the economy. Sustained deflationary pressure in the economy results in fall in production output and higher unemployment.

Q3. - A Consumer Price Index CPI measures changes in the price level of a basket of consumer goods and services purchased by households. CPI measures price of fixed basket of goods and services in economy that form part of household consumption, and not quantities of goods and services produced just domestically but it includes Imported products that do form part of consumer basket of goods and services hence it firmly finds the actual increase in prices.